Why is IV in Sirius so high?

[Trinitytrader]

Quote from atticus:

Own the shares? If not, sell the $4 put. Understand that you're looking at three nickels in extrinsic premium.

I Do not currently own the shares I would puchase to execute the Covered Call, I understand the premium is low my thought was if the merger goes through which it may or may not at this point, if it does the stock goes up I get executed I make a little money on the share price increase. If the merger is still in limbo I've got a little premium (10 contracts) looking at a 43 day window to execution. You think the March Puts are a value with the stock in an up trend?

Switze didn't intend to hijack your tread.

 

[switze22]

Hey no prob man I'm learning here too haha

 

[larrybf]

optioncoach , you left out one important fact..........about 90-95 % of people who trade options havent a clue regarding the mathematics of options.

 

[atticus]

Quote from Trinitytrader:

I Do not currently own the shares I would puchase to execute the Covered Call, I understand the premium is low my thought was if the merger goes through which it may or may not at this point, if it does the stock goes up I get executed I make a little money on the share price increase. If the merger is still in limbo I've got a little premium (10 contracts) looking at a 43 day window to execution. You think the March Puts are a value with the stock in an up trend?

Switze didn't intend to hijack your tread.

The stock and short call is equivalent to the short put. I'd rather be long the shares. Fifteen cents isn't much of a premium when you're limited to $1.00 in proceeds.

 

[El OchoCinco]

Quote from larrybf:

optioncoach , you left out one important fact..........about 90-95 % of people who trade options havent a clue regarding the mathematics of options.

It is a fact easily rectified by studying the greeks though

 

[Trinitytrader]

Quote from atticus:

The stock and short call is equivalent to the short put. I'd rather be long the shares. Fifteen cents isn't much of a premium when you're limited to $1.00 in proceeds.

I'm not quite following you how the stock and short call are equivalent to the short put. Unless your doing something like a Covered Short Straddle, I know it's a small premium but I thought it would be a good trade if the stock remained range bound. I appreciate your feedback

 

[commiebat]

Quote from Trinitytrader:

I'm not quite following you how the stock and short call are equivalent to the short put.

Think of what happens at expiration.

In either case, if the stock is above the strike price, you are left with nothing in your account but capital gain (the call gets assigned, the put expires worthless). The capital gain is the time premium plus the difference between the stock price and the strike price (in the form of capital appreciation for the covered call, or intrinsic premium for the naked put)

In either case, if the stock is below the strike price, you are left with 100 shares in your account (the call expires worthless, the put is assigned). Your cost for the shares is the strike price minus the "capital gain" amount from above.

Since both positions are bets on the same result, with the same stakes, they have to be equivalent. Otherwise, you could arb one against the other and get free money.