tag:blogger.com,1999:blog-19649274.post8055538974429334385..comments2024-03-29T12:03:50.891+05:30Comments on The Leap Blog: Comments to discuss, 23 May 2009Ajay Shahhttp://www.blogger.com/profile/03835842741008200034noreply@blogger.comBlogger4125tag:blogger.com,1999:blog-19649274.post-32728191946752891592009-05-23T16:31:31.474+05:302009-05-23T16:31:31.474+05:30Jumpup,
I don't understand why this would usually...Jumpup,<br /><br />I don't understand why this would usually happen on low vol days. It may be easier to see variance between implied vol and real vol when real vol is low but that may be all there is to it. <br /><br />Increase in puts by 30% when the market is up 2% is not that unusual if implied vol jumps significantly (demand for puts increases) to compensate for the decrease in put value due to the underlying being up. <br /><br />Secondly, this is a common thing with options. For example, the earnings in the US have been highly uncertain for the last quarter. One of the common option strategies has been to buy slightly OTM straddles on a stock a week before earnings and sell just before earnings are released. This is a way to buy vol cheap and sell increased vol into earnings without taking on the event risk. Additionally, after earnings the option premia for both calls and puts decreases dramatically (if you factor out the change due to the underlying move) as the event risk is now gone and implied vol is essentially sucked out of the options. So it may not be worth waiting until after the event has occurred to sell the straddle. <br /><br />So, yeah smart money would be a buyer of options/vol atleast a week before the event and will always sell into the event sometimes leaving a fraction of the position on as a lottery ticket.viveknoreply@blogger.comtag:blogger.com,1999:blog-19649274.post-82215485837929786992009-05-23T12:52:51.642+05:302009-05-23T12:52:51.642+05:30Vivek I agree...
The rise in PE and CE both happe...Vivek I agree...<br /><br />The rise in PE and CE both happen when there is vey low volatility in the mkts. It has surely happened in the past and wil repeat again in the future. No doubt.<br /><br />But two things, Friday was not a low volatility day. Secondly, the rise in cost of PE was huge, 30 odd pc though the underlying rose and closed near days high, around 3685 circa.<br /><br />And the lottery logic is often a way traders use to form a bias. Smart money was writing ITM PE :D on Friday<br /><br />Soham<br />[jumpup]Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-19649274.post-49490739281402451822009-05-23T04:50:51.853+05:302009-05-23T04:50:51.853+05:30Btw, the shift from 3400 PE to 3300 PE is not that...Btw, the shift from 3400 PE to 3300 PE is not that surprising either. The more OTM the put the greater the percentage increase would be. As with any OTM option, people are buying lottery tickets. As implied vol increases due to increased put demand, interest shifts out to comparatively cheaper further OTM options.viveknoreply@blogger.comtag:blogger.com,1999:blog-19649274.post-89647886345000711862009-05-23T04:45:06.061+05:302009-05-23T04:45:06.061+05:30It not that rare a phenomenon to see both calls an...It not that rare a phenomenon to see both calls and puts go up in value. Check out option premiums for a stock before earnings (or for a healthcare stock before a drug trial result is announced).<br /><br />Btw, a better comparison is to look at implied vols. On Friday, the 3300 PE was indeed expensive at 65% implied vol. The 4000 CE implied vol was less than 50%.<br /><br />The 3300 PE at similar 50% vol would have been priced half as much as it was of Fri. <br /><br />Nothing extraordinary about it - the puts were in demand (higher volume than for the calls) and were more expensive.viveknoreply@blogger.com