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?

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

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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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

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

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 - 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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