I put on some ratio puts spreads with the short leg around 500 ,with the intention of owning SPY if we keep going down. im going full WXY buying the index in down 20 percent moves.. Next buy stop after we take out 500 will be 400
I might miss the train but I find that brave. This 10% in 2 days was event related, I can't imagine Trump backing up on tariffs after all that show on live tv. It would be a failure. Do you see the event priced in or have levels where to average in? Magnitude aside things look cheaper but not so cheap when one looks back just a couple of years. Right now, I would go full SML long index if I see a flash 50% from ATH in days/weeks (1987 style). But I am just an amateur who times these events often wrong! At least this time I have exited my long exposure in Feb.
https://www.cnbc.com/2025/04/06/kevin-hassett-stock-market-crash-not-part-of-trumps-strategy.html If market crashes 50% I won’t be in a hurry to buy THE bottom. Better be 2 or 3 days late than 10 days early.
Actually put call parity is not violated here. Wikipedia and textbook math presentations give a simplified view of the real thing by ignoring the bid ask spread, but in practice the bid ask spread is paramount. The "perfect" relation C - P = S - K becomes "what's the arbitrage PNL given bid and ask?". And you can rest assured that it's always gonna be negative. You can check the relations for calculating the put-call parity arbitrage PNL in my open source code here: https://github.com/aquarians/Public...java/com/aquarians/aqlib/OptionPair.java#L102 I'm basing my answer on @cesfx 's screenshot from IB: Using the formulas you can find on GitHub, you have: // pnlBuy = forward - strike - callAsk + putBid - borrow; pnlBuy = 850 - 850 - 39 + 25.55 - 0 = -13.45 // Negative PNL! // pnlSell = strike - forward + callBid - putAsk - borrow; pnlSell = 850 - 850 + 33.40 - 33.35 - 0 = 0.05 // Practically zero So you see? No parity violation, no opportunity. You can't make money, the market always wins.
Don't forget about carry costs when looking at extrinsic value. Puts will carry less value because of risk-free rates that drive them down: the longer the expiry the more pronounced this is. Dividends will counter this if the expiry includes them.
Well said. Unless a hard to borrow is affecting markets (short squeeze) put/call parity keeps things honest.
Huh? Short squeeze? The HTB condition results in the synthetic trading under shares. Put/call parity isn't violated.
Yes as a Market Maker I traded names like Sino Forest that were almost impossible to borrow, which broke down parity. The arbitrage opportunity that maintains parity disappears.
Yeah, the reverse conversion is unable or risking huge var on borrow and the conversion is underwater = borrow less RFR. The upside is that you can get long at a discount. At least with the short synthetic you know what you're borrowing.