Showing posts with label Calendar Spread. Show all posts
Showing posts with label Calendar Spread. Show all posts

Thursday, November 17, 2016

Super Stupid Option Premium Skew

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Now, this is irritating. Nifty Spot closed at 8090.95, and Nifty November Futures closed at 8075.25. Now, December 2017 Nifty 9000 Call that is 909 OTM is available at around 337, and December 2017 Nifty 8000 Put that is 91 OTM is available at around 338. Why is a 909 OTM option and a 91 OTM option available at the same price?



Market Depth - Nifty December 2017 9000 Call
Nifty December 2017 9000 Call - 909 OTM for ₹337



Market Depth - Nifty December 2017 8000 Put
Nifty December 2017 8000 Put - 91 OTM for ₹338




These LEAPS options do have sufficient market depth to allow accumulation.

I might be wrong, but I think that 8000 is considerably closer to the the current Nifty Spot Price than 9000. Do the big option players think differently? Why is there a persistent skew overpricing Calls in comparison to Puts? What am I missing?

Isn't there free money here, like I have posted about the Premium Skew in July this year? I have been periodically observing the Premium Skew, for at least 3 years now. I had even attempted to trade it once, but got bored after a couple of months (See my post in Traderji about it). I just don't have the patience needed to pull it off. Maybe, it does not match my temperament, or maybe it is just that I don't have sufficient capital to make a big killing on it, or maybe it's just that I have got better stuff to do ☺

Or, maybe I just don't understand this stuff at all. Such is life.... Skew my life!!


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Friday, July 15, 2016

Free Money - Premium Skew

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Well, nothing is free, but this is a setup with a very low risk of losing money. Nifty Index is currently (July 14 EOD) at 8565. The derivative premiums are ridiculously bullish. 9000 deep in-the-money (ITM) Puts have almost nil Theta (time value).

Nifty Option Chain - Strike Price 9000
Nifty Option Chain - Strike Price 9000



December 2016 8500 and 9000 strikes are liquid at the moment. It is time to buy the December deep ITM strikes.


Nifty Option Chain - December
Nifty Option Chain - December


Near month at-the-money (ATM) or nearby strikes can be sold again and again. You have time until December to own a free 9000 put. If the price, moves to 9000, the 9000 December Put will still be above 200 - see the current price of 8500 December Put, but the near month puts will lose value. Even if the price moves down, the December deep ITM Puts will have a higher Delta than near month ATM puts. And you can always roll over the near month to the next month.


Nifty Option Chain - July
Nifty Option Chain - July


Nifty Option Chain - August
Nifty Option Chain - August


And given the crazy premiums on the Call side, if you want to play a Calendar Spread, you should buy the near month Calls and sell the far month Calls. Markets are about to open, so posting this in a hurry....


Also read:
Super Stupid Option Premium Skew




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