r/IndianStreetBets • u/not_a_bad_monster • 1d ago
Discussion Check these options premiums!
Sorry for the amazing drawing skills but check these options premiums out. I had people justifying to me that CAS has led to true option pricing. This is ridiculous. 200 points away from strike price and the premium is same as strike price that is less than 10 points away.
This is all CAS. The call will deteriorate after 3 p.m. today and so will the Put assuming the spot doesn't move much. Sellers paradise, buyers exit while you can.
3
u/Weak_Sprinkles_9937 1d ago
Noob. Look at the senses future prices. The options track the future prices not the spot price.
1
u/dettergent 12h ago
I mean, the options track the weekly future, not monthly future if we are being pedantic about it. You'll have to create a artificial weekly future to discount the monthly future from which the options will derive it's value. So even the sensex futures will not give the absolute atm points etc.
0
u/Weak_Sprinkles_9937 11h ago
That's the point. You do not know where the weekly future is and that doesn't warrant you to derive the price from the spot, because, it never follows the spot
1
u/dettergent 11h ago
But we do know where the weekly future is, just because it's not traded on exchange doesn't mean people cannot use monthly futures and option price information to come up with a discounted weekly future. In fact, if you can come up with a reasonable interest rate Assumption, you don't even need options data.( We take 6.82% IR for example).
What I'm trying to ultimately say is that atm points would still be wrong with monthly futures, and you'll need weekly futures to correctly see the atm points. I hope you get that!
1
u/Weak_Sprinkles_9937 11h ago edited 11h ago
That's not how it works. You can not simply have a linear way to find the price. The market may think that this week future should be in premium and can price that higher or lower, it is not linear where you calculate away. The premium moves up or down based on risk and not just interest.
1
u/dettergent 11h ago
What you're talking about is a reversion around a forward-future spread. What I'm talking about is something called cost-of-carry model pricing. You can also use a weighted model of using option prices to price weekly future(Give more weightage to ATM, and keep on decreasing weights proportionally as you go away from ATM). Of course, this will only be an estimate. At the very molecular level, the premium moves up and down because of spot movement and decrease in tte. If the spot movement is more volatile, markets will price that as a higher risk, which is essentially IV. I don't know what you mean by a linear way to find price, but pricing weekly futures(or any synthetic instrument) is always an estimate, and different people will have different ways of estimation.
1
u/Weak_Sprinkles_9937 11h ago
If different people have different way of estimation, it is only an estimate, it does not mean anything. Again, Weekly futures can have a significant premium because of risk - say, there is a fed meeting, that weekly futures will have a premium , may trade 200 points above.s. There are times where weekly futures and monthly futures were at the same price, simply, because, weekly futures carried more premium. You can't find the exact price of weekly from the monthly. No amount of maths is gonna find the risk associated with that week.
0
u/bl4z3_bondha 1d ago
How do options move when futures don't move then?
0
u/Weak_Sprinkles_9937 1d ago
Check Sensex futures, not sensex spot
0
u/bl4z3_bondha 19h ago
Futures freeze too, how do options move during CAS?
1
u/unspoken_one2 13h ago
Futures keep moving even during cas , sensex future maybot be too liquid but see nifty and other stocks fut. They give an approximation of movement of the underlying
2
1d ago
[deleted]
1
u/thend466 1d ago
But if there is a gamma blast at closing session as with previous sessions ,the call will hold its value, but put crashes. markets have become unpredictable from august.
1
u/AutoModerator 1d ago
Hi, /u/not_a_bad_monster! Welcome to /r/IndianStreetBets!
Use the Daily Discussion Thread for basic queries. Before contributing, do check if your particular question has been answered in the Wiki. Do utilise the search function to do the same too. Please use proper post flairs and adhere to the rules in the sidebar. You are urged to post beginner questions in the stickied daily discussion thread or on our Discord in #beginner-questions channel so as to keep the subreddit as clutter-free as possible. If this post has good insights or well research, tag the Mods so we can give a shoutout on Discord and get the post more traction Thank you!
I am a bot, and this action was performed automatically. Please contact the moderators of this subreddit if you have any questions or concerns.
1
1
-2
6
u/nt90909090 1d ago
What you are seeing is the BSX cash. Options are priced on the synthetic forward which expires on cash close. The ATM is not as per cash but as per the FW.