Now consider that Call_IV and Put_IV are independent variables. Everything else will align accordingly right? As per Put Call Parity, the fut will be priced to accommodate this. As per NSE data, we get very different surfaces for Put_IV and Call_IV (yes even highly liquid ATM strikes). Option market arbitrage forces also apply on futures and we sometimes have contango and backwardation depending on sum vector of all forces. Call_IV and Put_IV needn't be equal at same strikes mainly because demand for calls and puts is different. IV is an indicator of the balance of demand-supply at that strike. Far OTM is dominated by higher % of short dealer gamma (long Far OTM for counterparty) in the total OI and hence much higher IV as we go far OTM. Near ATM is mainly where is the speculative play happens. Hence a lot of near ATM vega is sold as spreads. Near ATM OI is dominated by larger short positions (or long dealer gamma). Hence the skewness can be used to gauge how the market is positioned for an expected move in underlying.
"As per Put Call Parity, the fut will be priced to accommodate this"
Explain how?
The only moving parts are the option price and the rate of interest. Tell me what makes more sense:
A: We imply out a collective 'realistic' rate of interest from synthetic futures - which gives us an idea of how much the market is paying to borrow money at?
Or, B: We assume that every market participant gets to borrow/lend at 10% interest rate (as used by the NSE for their option chain) and they all have a different IV they're pricing every single strike call and every single strike put at?
Now consider that Call_IV and Put_IV are independent variables. Everything else will align accordingly right? As per Put Call Parity, the fut will be priced to accommodate this. As per NSE data, we get very different surfaces for Put_IV and Call_IV (yes even highly liquid ATM strikes). Option market arbitrage forces also apply on futures and we sometimes have contango and backwardation depending on sum vector of all forces. Call_IV and Put_IV needn't be equal at same strikes mainly because demand for calls and puts is different. IV is an indicator of the balance of demand-supply at that strike. Far OTM is dominated by higher % of short dealer gamma (long Far OTM for counterparty) in the total OI and hence much higher IV as we go far OTM. Near ATM is mainly where is the speculative play happens. Hence a lot of near ATM vega is sold as spreads. Near ATM OI is dominated by larger short positions (or long dealer gamma). Hence the skewness can be used to gauge how the market is positioned for an expected move in underlying.
"As per Put Call Parity, the fut will be priced to accommodate this"
Explain how?
The only moving parts are the option price and the rate of interest. Tell me what makes more sense:
A: We imply out a collective 'realistic' rate of interest from synthetic futures - which gives us an idea of how much the market is paying to borrow money at?
Or, B: We assume that every market participant gets to borrow/lend at 10% interest rate (as used by the NSE for their option chain) and they all have a different IV they're pricing every single strike call and every single strike put at?
with your math knowledge u r perfect fit for writing code for institution's algo. don't try to trade yourself, you will lose like anything.
trolling ko chhod ke aur bhi aata hai.. chalo acchha hai.