When P-C parity does not hold

jamesbp said:
Here we go again
... when Bob lost the argument about p-c parity ... he claimed he just wasn't interested in the debate any more
More...

He didn't lose. You didn't understand his very accurate, informative response. I suggest you try reading what he wrote again and digest it this time.

jamesbp said:
Of course, you may be confusing p-c parity with non-arbitrage
... but that is a different subject
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You are getting cute w words. Most likely saying the same thing.

P/C parity always holds. I won't be jumping into your hypothetical as your perspective and facts are both flawed.

The difference is always some extra risk being priced into p vs c. Early exercise plus cost of carry plus extreme market conditions can do some bizarre things to markets . Shocking, I know :)

If you want to point me to a product, id be happy to explain what's happening. I would need to know the product, all bids/offers for every p/c as well as the underlying, to give you a high school level explanation.
 
Jerkstore said:
P/C parity always holds.
I won't be jumping into your hypothetical as your perspective and facts are both flawed.
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How exactly are my facts flawed ...

I have provided the simplest of examples to illustrate the point that p-c parity does not necessarily hold for American Options.

Why not provide me with your explanation of why you think it does hold using the example provided ...
 
jamesbp said:
Here we go again
... when Bob lost the argument about p-c parity ... he claimed he just wasn't interested in the debate any more

If you think p-c parity always holds, then try to do what Bob/Guru refused to do
... and explain why it always holds when the following example clearly shows that it doesn't

For American Style options
... Spot $100
... with 30 days to expiry
... IV 20%
... interest rates 0%
... Dividend $10
... $80 strike shows a put-call difference / inequality of 9.9643

View attachment 207785

Of course, you may be confusing p-c parity with non-arbitrage
... but that is a different subject
More...


Lol, $10 div into a $100 stock? Why do you think the American call is worth $9.96 more?

This is options 101.

P/C parity always holds .
 
Jerkstore said:
Lol, $10 div into a $100 stock? Why do you think the American call is worth $9.96 more?

This is options 101.

P/C parity always holds .
More...

Spot Price $100
Dividend $10
$80 strike
... call price ... Euro Settlement $10.04 / American Settlement $20.00
... put price ... Euro Settlement $0.04 / American Settlement $0.04

What is your p-c parity calculation for each Euro / Amer settlement ?
 
Robert Morse said:
Because you are using the CBOE calculator not realtime markets.
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Bob

Glad to see you are back in this discussion ...

The point of using an option model was to provide a simple illustration the fact that put-call parity doesn't necessarily hold for ITM options with American Style exercise and dividends before expiry

Are you now saying that ... the model clearly shows that put-call parity doesn't necessarily hold for ITM options with American Style exercise and dividends before expiry ... but in the real time markets put-call parity does hold

If you don't like the CBOE/iVol option model I have used
... feel free to suggest another option model of your choice
... generate prices for the example given
... show put-call parity exists

Shouldn't be too difficult with all the resources you have at Lightspeed

Cheers
James
 
jamesbp said:
Bob

Glad to see you are back in this discussion ...

The point of using an option model was to provide a simple illustration the fact that put-call parity doesn't necessarily hold for ITM options with American Style exercise and dividends before expiry

Are you now saying that ... the model clearly shows that put-call parity doesn't necessarily hold for ITM options with American Style exercise and dividends before expiry ... but in the real time markets put-call parity does hold

If you don't like the CBOE/iVol option model I have used
... feel free to suggest another option model of your choice
... generate prices for the example given
... show put-call parity exists

Shouldn't be too difficult with all the resources you have at Lightspeed

Cheers
James
More...

James,

The problem is that you are looking for an answer in the manner that you’re looking at the world, which is unrealistic. I have tried to explain to you that put call parity needs to be in place or someone would take it vantage of The miss-pricing. The markets are efficient. Your example is not relevant as is theoretical and not real.
 
Robert Morse said:
James,

The problem is that you are looking for an answer in the manner that you’re looking at the world, which is unrealistic. I have tried to explain to you that put call parity needs to be in place or someone would take it vantage of The miss-pricing. The markets are efficient. Your example is not relevant as is theoretical and not real.
More...

Bob

You are confusing non-arbitrage with put-call pariy.

We agree that markets are efficiently priced and there are few ( if any ) arbitrage opportunities arising from option mis-pricing.

Just put your math where your mouth is ... should be simple for a man with your resources to show that put-call parity holds for American Style options with dividends before expiry

Pick any example you want !

Cheers
James
 
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