Options pricing (basic question)

[TD877]

When looking at contracts with the same expiration date, I would expect a call option that's $5 out of the money to be priced the same as a put option that's $5 out the money, but I often see discrepancies (most often with the call priced higher). Does this in anyway signal that buyers of options think the stock will rise?

When you look online about using options to predict spot moves, I basically just see information on put/call volume ratio, but why isn't the above used?

 

[cdcaveman]

look up skew... many times because of the behavior of the underlying , the market demand creates a skew.. meaning a higher price for puts then calls... in commodities its many times the opposite

 

[Trading Education Buyer]

http://www.ansbacherusa.com/news-blog/2015/8/19/why-puts-and-calls-are-not-created-equal

Stock prices fall in some months due to dividends?Does this affect put prices?

The carry cost of futures contracts which depreciates , how does it affect put premium?

 

[cdcaveman]

Dividends are a factor in options pricing

 

[stepandfetchit]

If you observe the IV surface for CALL's VS PUT's, you will observe that the lowest IV values for Calls are OTM (near a Moneyness value of about -0.2), while the lowest IV values for Puts are ITM (near a Moneyness value of between +0.1 and +0.2).
A couple graphs below to add to the confusion. ;-)

The RED dots are Mid-point IV for options with NO volume. The GREEN dots are Mid-point IV for options with >0 volume. The Back dots (only for the PUT graph) use Forward price for IV instead of spot price.

 

[CyJackX]

Yeah, it's just skew. There are theoretical ideals for options pricing, but the market will set its own standards.

 

[Windlesham1]

http://www.ansbacherusa.com/news-blog/2015/8/19/why-puts-and-calls-are-not-created-equal

Poor old Max -rubbish returns again this year-and I long ago stopped calculating his index
The carry cost of futures contracts which depreciates , how does it affect put premium?

 

[water7]

just rephrasing the original question..
can the skewness predict a certain behavior / price movement?

 

[sle]

just rephrasing the original question..
can the skewness predict a certain behavior / price movement?

Well, skew means that people are more interested in owning optionality in one direction then the other. you can interpret it in a variety of ways, to name a few:
1. people expect the terminal distribution to be skewed
2. people expect more volatility in one direction then the other
3. people are positioned one way and buy options to protect themselfs
etc...

 

[cdcaveman]

Well, skew means that people are more interested in owning optionality in one direction then the other. you can interpret it in a variety of ways, to name a few:
1. people expect the terminal distribution to be skewed
2. people expect more volatility in one direction then the other
3. people are positioned one way and buy options to protect themselfs
etc...

I like how you used "people" as its market demand and not the idea that its some model output, which it isn't... Prices are a function of "people" and their views and expectations of the market