Thursday, November 17, 2016

Super Stupid Option Premium Skew

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?

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

Market Depth - Nifty December 2017 8000 Put
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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