Here we go again... 
Put Call not in parity
- Thread starter misterkel
- Start date
He already said that there is no dividend before the option expiration date, so it’s same as stocks without dividends. Dividend is $0.
I also thought there is a dividend, but there isn’t. Future dividends will affect future/further options.
Though his question is difficult to answer without an example, so all answers may be speculative. I have some suspicions that he is wrong but cannot prove it by speculating.
OP here. Here is the chain:
Talking about TIME VALUE, which is the essence of P/C parity. The call options carry 3.50 in time value at Strike 333 and the put options carry 2.95.
Feb. 21, before ex-div.
My only thought is - does this have to do with the time value of money? The premium difference is $0.5 ish. That's about 1.8% annualized. Is this a market adjustment against shorting SPY and longing a synthetic and placing the borrowed funds from the short into a risk-free rate position?
And, that's just a guess.
Talking about TIME VALUE, which is the essence of P/C parity. The call options carry 3.50 in time value at Strike 333 and the put options carry 2.95.
Feb. 21, before ex-div.
My only thought is - does this have to do with the time value of money? The premium difference is $0.5 ish. That's about 1.8% annualized. Is this a market adjustment against shorting SPY and longing a synthetic and placing the borrowed funds from the short into a risk-free rate position?
And, that's just a guess.
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Robert Morse
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Sorry, but that is not correct. You need to create a conversion. Buy stock (or future), buy put, sell call on the same line. That net when compared to the strike price, will have an implied interest cost of carry and dividend stream. If that if off, the options are off.
Time value doesn't reflect or relate to put/call parity. It seems to be based on IV which also means demand, and which creates skew. If more people buy more calls, then calls can be more expensive than puts at similar distance from ATM. I believe this is called a skew, and you cannot do much with it or about it.
Put/Call parity simply means that you cannot buy a box spread at a discount or sell it for more than collecting interest rate.
Here is $2-wide SPY box for the same date and strikes that you provided, and it proves that it costs as much as it should: $2, with an extra $0.01 possible due to interest rate).
Usually it is close enough.
But time to maturity is short and the interest rate is near zero. So e^(-r * T) is practically 1. Therefore S0 - K <= C - P <= S0 - K, thus C - P = S0 - K, holds exactly.
Nobody cares about puts any more the market only ever goes up -why did we not know this every year since 2009?