I get this question a lot in DMs so putting it here so I can refer to it later. "Why do put options and call options at the same strike have different implied volatilities (attaches screenshot of broker GUI)?"
Show this thread
-
i think u got lazy and didnt read the thread ;)
Ah I read it but what I understood was “the IVs are wrong because your broker has crappy input data and doesn’t care” but I think what you meant was “the IVs are wrong because the options are American and there are dividend/borrow effects, and your broker uses BS naively”
-
-
its not skew
- Show replies
New conversation -
-
So what ought to happen to BS IV of an ATM call, priced using implied forwards, as a biggish dividend approaches… nothing? Because all of the effect is captured by the forwards on the premise that everyone must exercise?
- Show replies
New conversation -
-
SPX index option calls and puts which are European and cash-settled on expiry show diff ImplVols on TOS SOMETIMES.
Thanks. Twitter will use this to make your timeline better. UndoUndo
-
-
-
Yup. When you take into account the dividend and borrow there will be no synthetic arb as some people believe like a conversion/reversal on the same strike. Too many people thought this was possible GME and AMC.
Thanks. Twitter will use this to make your timeline better. UndoUndo
-
-
-
How you compute implied forward/vol for American options on div paying underliers gets a bit more complicated because call/put parity doesn’t exactly, but the logic is the same. A kink in the vol surface for a given term means implied forward is wrong.
Thanks. Twitter will use this to make your timeline better. UndoUndo
-
-
-
Idk if this is used in the options T&S but thinkorswim, which is what this whole thing was based around iirc, uses Bjerksund-Stensland rather than BSM, at least on the Risk Profile area
-
I really doubt it takes into account borrow fees though
End of conversation
New conversation -
Loading seems to be taking a while.
Twitter may be over capacity or experiencing a momentary hiccup. Try again or visit Twitter Status for more information.