How To Write Covered Calls - An Ongoing Real Case Study! Message Board

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Strategies & Market Trends : How To Write Covered Calls - An Ongoing Real Case Study!

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To: Herm who wrote (7191)	3/29/1998 11:48:00 PM
From: saket chadda	Read Replies (2) of 14162

Herm, The way I've been calculating options parity is described below and I think it is incorrect: Look up the open interest for puts and calls at different strikes. Add the open interest in both and define parity at the strike which has maximum Calls + puts open interest. The above is obviously wrong, but I feel people on this thread and other related threads have been using the above formula. The basic premise of options parity is the strike where the MM make the maximum money. It is not necessarily the strike where the maximum number of options expire worthless. For example: Strike Call OI Put OI Total 15 2000 1000 3000 20 100 5100 5200 25 100 4600 4700 If the total is considered, 20 should be parity, however, the MM will make more money if the stock closes at 25, since the 20 puts and the 25 puts will both expire worthless and he has to pay only $5 for the 100 calls at 20. If everyone else has been using this, i guess I've learnt something which all were using. If not, i guess we all learnt something new. Saket

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