Confused about option movement

[Ank_22]

Let’s take an example of a index around 18000

Say if 19000Call has a premium of 100
17000Put has a premium of 100

Scenario 1 - Underlying goes up 100 points
19000 call premium went up to 110 but 17000put went down to 60.
Scenario 2 - Underlying Goes down 100 points
19000 call premium went down to 90 but 17000put goes up to 140.
Now I checked and both of these options they had the same greek values and the implied volatility was also around the same at 28percent, 17000pe might have have 1-2 percent higher implied volatility.

This happened multiple times wherein the 17000put was much more reactive as opposed to 19000call strike. I am assuming this might have been due to the market condition for that particular day, as there was a sell-off, the trend was bearish and hence the PE strikes were much more reactive.

Both of the strikes also had same days left for the expiration of the contract.


Please let me know what exactly is happening.

Thank u

 

[caroy]

Interesting question. I've seen this same type of movement or lack of movement while trading options. My guess is the market maker spread is only so much and and the overall market bias can impact pricing. I think just because we have models for prices it doesn't mean conditions always mimic this. Options can be over priced or under priced and these discrepancies can last for a while. Play around with straddles on expiration day and you'll see some funky things happen.

 

[Ank_22]

Interesting question. I've seen this same type of movement or lack of movement while trading options. My guess is the market maker spread is only so much and and the overall market bias can impact pricing. I think just because we have models for prices it doesn't mean conditions always mimic this. Options can be over priced or under priced and these discrepancies can last for a while. Play around with straddles on expiration day and you'll see some funky things happen.

Does this happen very often or once in a while, bcs the amount I have observed and as far as I understand this is not a regular occurance. The put was more than 2x reactive to the call options,

 

[OptionsOptionsOptions]

• IV increases much more during a downward trend.
  
• IV might not even increase during an upward trend.

 

[Ank_22]

• IV increases much more during a downward trend.
  
• IV might not even increase during an upward trend.

That's correct but this was just a single day observation where multiple times during the day with both put and call that had about the same IV, the put was more reactive didn't matter if the underlying was going up or down.

 

[caroy]

Does this happen very often or once in a while, bcs the amount I have observed and as far as I understand this is not a regular occurance. The put was more than 2x reactive to the call options,

What was the OI like at each strike? Was one much higher than the other? Sometimes that can explain stickiness of prices and their responsivity.

 

[cesfx]

Can it also be delta changes? Although neutral at entry, it moves with price change. That and IV and maybe more greeks can change with changes of direction and moneyness, although you entered neutral.

 

[guru]

Let’s take an example of a index around 18000

Say if 19000Call has a premium of 100
17000Put has a premium of 100

Scenario 1 - Underlying goes up 100 points
19000 call premium went up to 110 but 17000put went down to 60.
Scenario 2 - Underlying Goes down 100 points
19000 call premium went down to 90 but 17000put goes up to 140.
Now I checked and both of these options they had the same greek values and the implied volatility was also around the same at 28percent, 17000pe might have have 1-2 percent higher implied volatility.

This happened multiple times wherein the 17000put was much more reactive as opposed to 19000call strike. I am assuming this might have been due to the market condition for that particular day, as there was a sell-off, the trend was bearish and hence the PE strikes were much more reactive.

Both of the strikes also had same days left for the expiration of the contract.


Please let me know what exactly is happening.

Thank u

Sometimes it’s the opposite, like last September the puts weren’t gaining much and on some days even losing value even when the market was dropping.
Greeks don’t have much to do with this as they’re used to measure things that happen, not influence them.
The explanation is simple: options are insurance, and they cost as much as people are willing to pay for it, which also relates to how expensive the insurance already is. If downward insurance (puts and VIX) is somewhat cheap and people aren’t prepared for the market to go down then they may rapidly start buying puts, thus increasing insurance costs for everyone. This wasn’t happening last September when insurance/VIX was already so expensive that nobody wanted to pay even more for it, while people were also generally being prepared for the market to drop.
Puts got much cheaper since then so now insurance is more affordable and people grab it as soon as they feel they may need it. This will stop when insurance becomes relatively expensive again.
Same with calls, if they aren’t reactive then they’re either already too expensive or people don’t want to pay the current price for them. They’ll become cheaper when people lose hope for the market to go up, while becoming much more expensive when there is euphoria for the market to explode up.
There is also relationship between them where both puts and calls become more expensive when volatility is high, but you’ll still notice higher sensitivity of one or the other.

 

[Ank_22]

Sometimes it’s the opposite, like last September the puts weren’t gaining much and on some days even losing value even when the market was dropping.
Greeks don’t have much to do with this as they’re used to measure things that happen, not influence them.
The explanation is simple: options are insurance, and they cost as much as people are willing to pay for it, which also relates to how expensive the insurance already is. If downward insurance (puts and VIX) is somewhat cheap and people aren’t prepared for the market to go down then they may rapidly start buying puts, thus increasing insurance costs for everyone. This wasn’t happening last September when insurance/VIX was already so expensive that nobody wanted to pay even more for it, while people were also generally being prepared for the market to drop.
Puts got much cheaper since then so now insurance is more affordable and people grab it as soon as they feel they may need it. This will stop when insurance becomes relatively expensive again.
Same with calls, if they aren’t reactive then they’re either already too expensive or people don’t want to pay the current price for them. They’ll become cheaper when people lose hope for the market to go up, while becoming much more expensive when there is euphoria for the market to explode up.
There is also relationship between them where both puts and calls become more expensive when volatility is high, but you’ll still notice higher sensitivity of one or the other.

That's the thing though this data was specifically just a single day data and the question then that comes up is that how do you figure out when is it that the premiums have become too expensive and the people are not willing to pay more. The OI on the call side was a bit more for sure but the difference in OI isn't necessarily the reason for less activity in calls bcs as far as I know even if there is difference is OI there shouldn't be a difference of movements as high as two or three times in the puts and calls. As far as VIX is considered it definitely indicates higher volatility but that does not mean that the volatility is only for put option strikes or only for call option strikes.

 

[Ank_22]

What was the OI like at each strike? Was one much higher than the other? Sometimes that can explain stickiness of prices and their responsivity.

Higher OI in some strikes is always there but it wasn't something very different.