lnkd put call parity out of wack

[newguy05]

anyone know whats up, on my cell maybe my quote is bad but the vol looks completely out of balance

June atm 4.5 vs 8.5
July atm 6 vs 13

 

[LEAPup]

Imp vol is very high. There are only about 10% of the lndk shares out there to borrow. Tough call on lnkd.

 

[FSU]

Quote from newguy05:

anyone know whats up, on my cell maybe my quote is bad but the vol looks completely out of balance

June atm 4.5 vs 8.5
July atm 6 vs 13

Stock is very hard to borrow, So there is a huge premium in the conversions.

Easy money for the brokers who are holding this stock. They can loan it out for great profits.

 

[newguy05]

ok thx so not bad data. i guess the same situation as shld back then, what's the borrow rate 30%?

 

[FSU]

Quote from newguy05:

ok thx so not bad data. i guess the same situation as shld back then, what's the borrow rate 30%?

Looks like much more. Between 50 and 100%

 

[atticus]

The reversal implies borrow rates of ~70-75% as FSU suggests.

 

[FSU]

This shows the edge you have by selling a put instead of simply buying the stock. Doing the entire reversal (selling a put and buying the same strike call) is essentially the same as buying the stock. If you do this in June options, you are essentially being paid an extra $4 over the price of the stock.

This is not saying you will make or lose money, just that you have and extra edge over someone who just buys the stock. That customer is giving the extra money to the brokerage house who will loan it out for a fat profit.

 

[newguy05]

Quote from FSU:

This shows the edge you have by selling a put instead of simply buying the stock. Doing the entire reversal (selling a put and buying the same strike call) is essentially the same as buying the stock. If you do this in June options, you are essentially being paid an extra $4 over the price of the stock.

This is not saying you will make or lose money, just that you have and extra edge over someone who just buys the stock. That customer is giving the extra money to the brokerage house who will loan it out for a fat profit.

what about doing the synthetic long but hedge it with the most ditm put to avoid the interest rate? In lnkd case it still doesnt work, but what if the strikes are deep enough, will it ever work?

for example:

1) long june 87.5C, short 87.5P: credit of $3
2) long june 140P: but in this case it still has a premium of >$3.

What if the strike of the ditm put goes all the way to $200 and premium <$3. Will that be a valid arb?

 

[mushinseeker]

probably will work but be very slim since you also have to consider the laying out of the money for the deep ITM put which will eat up your cash available for margin.

 

[FSU]

The problem with this is the 140 put would still contain the "premium" for the short stock. If you did this play you would be synthetically long the June 140 call (if you sold that out you would simply be long a box) No profit opportunity here.

Quote from newguy05:

what about doing the synthetic long but hedge it with the most ditm put to avoid the interest rate? In lnkd case it still doesnt work, but what if the strikes are deep enough, will it ever work?

for example:

1) long june 87.5C, short 87.5P: credit of $3
2) long june 140P: but in this case it still has a premium of >$3.

What if the strike of the ditm put goes all the way to $200 and premium <$3. Will that be a valid arb?