Does Option Prices tell current market bias?

KerryNewman said:
I realize now I did not state the question properly. OK, lets say a stock is priced at $300. A $300 put cost $1.50 and a $300 call is $3.50, same expiration date. Does that mean the market is pricing the options as if the stock will rise?
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No, because if there was no dividend, I would buy the stock at $300, buy enough 300-strike puts to completely hedge the position, and sell the same number of 300-strike calls to make guaranteed risk-free profit. These situations exist and I do them if I want to get a slightly higher (although still really low...currently something like 2.3% APR) rate of return on excess cash.
 
Stock + Put - Call is parity. They should yield the risk free rate. There are some exceptions where stock is hard to borrow(expensive puts) or dividend uncertainty. Otherwise if that relationship get out of line it creates a risk free opportunity. P/C parity assumes all the pieces can be easily traded and money can be borrowed/lent freely
 
destriero said:
Yeah, but anyone could book the conversion.
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Appreciate the answer and agree in certain scenarios. You're booking the conversion at a debit. Depends on the divs (or overall PNL/takeover price)
 
312 said:
Appreciate the answer and agree in certain scenarios. You're booking the conversion at a debit. Depends on the divs (or overall PNL/takeover price)
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Ahh, referring to completion/delisting.
 
Oh what price they complete the deal, got it. Yeah but that's still a tentative, probability-weighted average and odds are if you're on this forum you don't have access to improve the odds vs priced.
 
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KerryNewman said:
I realize now I did not state the question properly. OK, lets say a stock is priced at $300. A $300 put cost $1.50 and a $300 call is $3.50, same expiration date. Does that mean the market is pricing the options as if the stock will rise?
More...

This is a much different question.

Calls should be cheaper if a dividend is paid, so it could be assumed that this is not a cash flow positive asset. It could theoretically be a security with an extremely negative interest rate. If these are European options, that would have to be the case.

The volatility surfaces of puts vs calls do a see saw of their own throughout the day and over time for American options with the underlying. If there's no volume, the market makers probably believe the price will rise. If there's lots of volume, funding has pushed the market into this configuration.
 
Error Correction Funder said:
This is a much different question.

Calls should be cheaper if a dividend is paid, so it could be assumed that this is not a cash flow positive asset. It could theoretically be a security with an extremely negative interest rate. If these are European options, that would have to be the case.

The volatility surfaces of puts vs calls do a see saw of their own throughout the day and over time for American options with the underlying. If there's no volume, the market makers probably believe the price will rise. If there's lots of volume, funding has pushed the market into this configuration.
More...

Nobody on this forum trades European options. This is a guy waiting to get early-exercised by a dealer.
 
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