Long put, long theta
- Thread starter erol
- Start date
It would be helpful to know the theta value, and the option and the underlying quotes at the time.
It was probably just a distortion of the option pricing by the analytics.
The ITM puts (46-54) should not be priced below parity for practical purposes. The analytics seems to have done just that.
I suppose that a theoretical value below parity could be derived - although the difference would be neglgible.
The ITM puts, the 46-54 strikes, are illiquid, with little or no volume. The B/As are pretty wide, at least a dime above and below parity. So pricing the options from market quotes could lead to distortions.
(written yesterday)
It was probably just a distortion of the option pricing by the analytics.
The ITM puts (46-54) should not be priced below parity for practical purposes. The analytics seems to have done just that.
I suppose that a theoretical value below parity could be derived - although the difference would be neglgible.
The ITM puts, the 46-54 strikes, are illiquid, with little or no volume. The B/As are pretty wide, at least a dime above and below parity. So pricing the options from market quotes could lead to distortions.
(written yesterday)
The theoretical values for the 48+ strikes are below parity, hence the pos. theta.
These values are too low. Since they are American style, the value used should be parity and possibly a little higher for the 48 strike. This would give the 50 strike a value of 6.01.
The difference between parity and the theoretical value should be negligible.
The values appear to be closer to European style pricing, although I haven't done the calcs.
These values are too low. Since they are American style, the value used should be parity and possibly a little higher for the 48 strike. This would give the 50 strike a value of 6.01.
The difference between parity and the theoretical value should be negligible.
The values appear to be closer to European style pricing, although I haven't done the calcs.
It's a pure case of optimal exercise strategies.
Theorically, there is no advantage to stay on a position with positive theta as you 're trading american style options.
As a matter of fact, current interest rates are so low hence the advantage disappears.
What MAW is saying is that since you can exercise and get parity now, there is no real value to the pos. theta.
But that's very theoretical because there really is no pos. theta, just a miscalculation by the analytics.
There's no advantages to your situation. The greeks are meaningless - you have an ITM illiquid put with a delta of 1. Its value is parity.
You haven't made it clear if you want to hold, sell, or exercise. But those are your options as long as the put remains ITM.
Since the put is part of a spread , risk management should be the #1 concern. Obviously, any "optimal exercise strategy" should consider all costs.