TWTR options pricing question
- Thread starter alephnine
- Start date
Yes, when the put is deep enough in the money. If you buy the stock and the put for parity, you are synthetically buying the same strike call for zero, plus the cost to carry the stock to expiration and commissions. Here the 19 call is only trading for .05. so you can tell they should be pricing the put around parity.
People underestimate the cost of slippage when trading. The market makers want to earn a living by pricing products so that the bid/ask spread can put food on the table. This spread is much larger when you have a bigger order to fill.
A deep in the money put has a delta close to 1 or equivalent move to the stock so there will not be any extrinsic value for the put to sell as the market maker will use the stock for hedging.
The option valuation models cant calculate deep in the money options properly and thus you cant use them to compute an implied volatility - it wont work... I have had good success buying these options and using the stock to get out for a profit later when being directional and going out about six months...implied volatilities are over stated with the models.
A deep in the money put has a delta close to 1 or equivalent move to the stock so there will not be any extrinsic value for the put to sell as the market maker will use the stock for hedging.
The option valuation models cant calculate deep in the money options properly and thus you cant use them to compute an implied volatility - it wont work... I have had good success buying these options and using the stock to get out for a profit later when being directional and going out about six months...implied volatilities are over stated with the models.