Personal Finance & Money Stack Exchange is a question and answer site for people who want to be financially literate. It only takes a minute to sign up.
Sign up to join this community
If an At the money Put trades for much higher than the ATM call, can we say that people are expecting the stock to move down? After all, what else could be the reason if the put is more expensive than the call? Please refer to the 43 strike call and put.
Sorry the picture is so small, enlarging it is not working with mspaint.
There are many reasons. Here are just some possibilities:
The stock has a lot of negative sentiment and puts are being "bid up".
The stock fell at the close and the options reflect that.
The puts closed on the offer and the calls closed on the bid.
The traders with big positions marked the puts up and the calls down because they are long puts and short calls.
There isn't enough volume in the puts or calls to make any determination - what you are seeing is part of the randomness of a moment in time.
What it means is that the stock has already moved down. Options and other derivatives follow the price of the underlying they are not a precursor to what the underlying is going to do. In other words, the price of a derivative is derived from the underlying.
It is a fool's errand to attribute abnormal option volume or volatility to any meaningful move in the stock.
One side of the chain is frequently more expensive than the other.
The relationship between historical volatility and implied volatility is dubious at best, and also a big area of study.
All of the Answers went off on a wild goose chase. Although he did not provide details, Mark Plotnick's comment is the reason why the put premium exceeds the call premium.
Before explaining why, you have to understand two things.
The first is Synthetic Equivalence. You can Google the "Synthetic Triangle" for an explanation. Regarding this question, a short put is equivalent to a covered call when the two options are of the same series (same strike and expiration).
The second is that pending dividends increase put premium and decrease call premium.
Since the $43 put is 8 cents ITM, its premium should be approximately 8 cents high than the $43 call (ignoring the carry cost differential). What accounts for the difference of 27 cents between these two options?
XLK is $42.92 with a pending 17 cent dividend. The bid of the $43 call is 52 cents. If you do the $43 covered call and you are assigned, you net 60 cents plus a 17 cent dividend for a total of 77 cents.
If you sell the $43 short put, you take in 79 cents which is almost identical to the covered call. Short term fluctuations account for a few cents difference. There's no disparity here.
