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In a word yes. It should be, otherwise arbitraguers would spot this mispirce, and alter the option premia so that it was the cause. (and the misprice would disappear) consider a scenario where the implied vol on the call is 20% and on the put 15%. consider a portfolio long one put, short one call and long one share of the underlying. (you could use a future here also) This portfolio is delta neutral. (- excericise) . notice we buy the undervalued, sell the overvalued. (it doesnt actually matter if the actual volatility is some other number like 50% or 10%) Portfolio will yield risk free returns. ie you will get no payoff at the expiration date. and you will pocket the difference in premia at the outset.
What else can I help you with?
How can traders use the NSE Option Chain to improve their trading decisions?
Traders can leverage the NSE Option Chain to analyze open interest, implied volatility, and option premiums. By identifying key support and resistance levels, tracking market sentiment, and monitoring changes in call and put options, they can make well-informed trading decisions and optimize their strategies.
What are the factors that determine the highest covered call premiums available in the market?
The factors that determine the highest covered call premiums in the market are the volatility of the underlying stock, the time until the option expires, the strike price of the option, and the current interest rates.
Can you provide an example of a deep in the money call option?
A deep in the money call option is when the strike price of the option is significantly lower than the current market price of the underlying asset. For example, if a stock is trading at 100 per share, a deep in the money call option might have a strike price of 50.
How to Trade Option Volatility?
If you are interested in trading stock options, then one of the best strategies you can learn is how to trade option volatility. There are a few reasons for this, which this article will discuss. 1. Don’t Need to Trade Option Direction The vast majority of option traders seek to make money by predicting the direction of the underlying stock. If they believe that the stock will rise in price, then they will buy call options; if they think the stock will drop in price, then they will buy put options. The unfortunate truth of this is that 70% of all options expire out of the money, which means that these are losing trade 70% of the time. One factor that makes directional trading so unprofitable is that it simply is very difficult to accurately pick the direction that a stock will move over a short time frame. The odds are even more stacked against you if you buy stock options that are out of the money. In this case, you don’t only need to be accurate about the direction of the stock, but you need to be accurate about the magnitude of the stock movement. While you very well may have been correct about both of these things on a long-term basis, options are peculiar because they have an expiration date. You must also be correct about the time frame that these price movements will occur, which is almost impossible to predict. 2. Trade Option Volatility The reason that you might consider trading option volatility is that it is easier to predict the direction of the volatility. While a stock has the unlimited potential for upward movement, the volatility of a stock almost always trades in a defined range. If the volatility skyrockets, then you can be assured that the volatility will soon return to normal levels. Similarly, if the volatility reaches extremely low levels, it’s a good bet that it will eventually be pulled back towards the average. There are many different strategies do take advantage of if you’d like to trade option volatility. Remember that short term option trading is speculation. Most of your investment portfolio should be concentrated in assets that grow over time.
What is a covered call in the money and how does it work in options trading?
A covered call in the money is an options trading strategy where an investor sells a call option on a stock they already own. The call option is considered "in the money" when the stock price is higher than the option's strike price. By selling the call option, the investor collects a premium, but they also agree to sell their stock at the strike price if the option is exercised. This strategy can generate income for the investor while potentially limiting their upside potential if the stock price rises above the strike price.
What happens if a call option expires in the money?
If a call option expires in the money, the option holder can buy the underlying asset at the strike price, which is lower than the current market price. This allows the holder to make a profit by selling the asset at the higher market price.
What are the strategies for selling butterfly spreads in options trading?
One strategy for selling butterfly spreads in options trading is to identify a range where you believe the stock price will stay within. Then, you can sell an "out-of-the-money" call option and an "out-of-the-money" put option, while simultaneously buying an "at-the-money" call option and an "at-the-money" put option. This allows you to profit if the stock price remains within the range you predicted.
Buying the call option is risky?
Buying calls isn't very risky. If the option expires out-of-the-money, all you lose is your premium. If it expires enough in-the-money to cover the price of the stock plus the premium on the call, you make money--potentially a LOT of money if the stock price shoots up.
How do you determine whether the currency option is in the money?
"In the Money" is a term used in option trading as a determinate to if an option has "Intrinsic Value." In the Money, does NOT mean in profit. There are two components to an option value, TIME VALUE, and INTRINSIC VALUE. Time Value + Intrinsic Value = Option Premium. When the market price is above the option strike price of a CALL option, that option is considered "In the Money" i.e. having intrinsic value. When the market price is below the option strike price of a PUT option, that option is considered "In the Money" i.e. having intrinsic value.
What happens if my call option expires in the money?
If your call option expires in the money, you have the right to buy the underlying asset at the strike price. This means you can purchase the asset at a lower price than its current market value, potentially resulting in a profit.
Can you lose money on a covered call strategy?
Yes, it is possible to lose money on a covered call strategy if the stock price decreases significantly below the strike price of the call option sold.
When do call options expire in the money?
Call options expire in the money when the market price of the underlying asset is higher than the strike price of the option at the expiration date.
