It IS put to call parity. The ITM call HAS to trade synthetically with the OTM put due to the "no arbitrage principle". This is why I had you google BOTH terms. The arbitrage principle is the foundation of option pricing. It allows you to price synthetics on the basis of put to call parity. Therefore, the "american call" has to trade at parity. If the ITM call is not trading at parity, it's violating the principle and free money can be made by buying the ITM call (if it's trading under parity), selling the same strike OTM put and selling stock.
You buy the call, sell the put and sell shares. The net-debit on the option combination will equal the forward on the shares (at fairval). That's the arbitrage (reversal). That's what Mav is referring to about "no arb" Getting pissed off isn't going to change the above relationship.
Jeez, but how much? If you have two of three you can price the third. Remember algebra? So yeah, forget all that shit.
I just happen to be doing CYS this am: CYS: Right now At 8.61 Buy the june 8.00 call, sell the june 8.00 put for a net credit of $36 Short the stock at 8.61 At expiration: Price........................Options...............Short stock................Net 6.00............................(225)..........................261........................ $36 8.00...............................(25).............................61......................... $36 8.61................................36.................................0........................... $36 9.80............................. 155..............................(119).................... $36 10.76........................... 251..............................(215).................... $36 (ignoring dividend)
So clever. Div of 32 for owner's of record by the close. You can't ignore the dividend. The dividend is considered rates (if known). These are traded on fwd rate predictions due to the low vig. You would do the reversal if you though there would be a material impact on the fwd (div reduction). If "no coupon" then you would have to cover on the convergence to the new rate. So you don't want to do these on illiquid stuff unless it's a dividend (not LIBOR, etc). So, you buy the reversal (short conversion) if you think XYZ will lower their payout. Buy the conversion on a predicted div-increase. If you're that numbnut Vix-Trader your head will asplode if attempted.
1) For the sake of overanalysis, the delta of the 80-call is 100 only if there is little time remaining until expiration, certainly not with a longer-dated option. 2) Black-Scholes aside, the time value of the option can be thought of as an "insurance premium" that the option buyer pays to establish a long-position in the underlying issue via the $80-call that has less total risk compared to the holder of the underlying stock at $100/share. If the stock goes to $0 tomorrow, the option buyer loses ~$21 per contract compared to the $100/share that the stockholder loses.
An answer to one of the questions I asked in the past finally appears in this thread. So they did know the answers, but didn't answer it. Probably I wasn't clear enough in my question. (I guess I should have asked Martinghoul.) Without giving away too much, IMO in this statement, there is an edge - in practice and in theory are quite different. Liquidity providers must choose one side.
It holds. If one doesn't earn a favorable enough interest rate on the short stock then you early exercise.
omg please. You asked someone on here if they delta-hedge on hourly daily or weekly. "Liquidity providers much choose one side" Nothing to do with edge. Nothing. go away with this gibberish.