>>Usually (->go back and read McMillan<-) puts carry more time premium.
Are we talking about the same strike price? If so, i argue that this is impossible, and if you can find cases where they do, then you have an opportunity to print money-- a free lunch. Suppose aol trades at 100, suppose the april 100 puts are 6 and the april calls are 5 3/4. Sell the put buy the call, and short 100 shares. Net credit is $10,250. you collect interest on the 10250, which by april has earned you around $100, and then no matter where the stock is you either exercise your call, or your put gets exercised, and you buy 100 shares of AOL for 10,000 which you return to the box. you are now up $350, you risked nothing and you had no carrying costs. Because there are carrying cost associated with shorting a call and buying a put (you have to hold the stock), a call will ALWAYS carry a slightly higher premium then a put. Any other situation will be INSTANTLY arbitraged by the market makers. they will be taken before the offered trades appear on your quontron.
i think what you must be refering to are mirror image calls and puts. the idea here is to compare the price of a call which is 10 out of the money with a put which is 10 out the money. here the put can be more expensive. this indicates bearish sentiment and would be interpreted by a conrarian as a buy signal.
BTW sorry, nonsense is a strong word and i should refrain from using it.
duke |
