dear all,
for those considering buying call options be aware of the following fact from options.
in the case of european options (which are options that can only be exercised AT maturity and not before) there is something called the "put/call parity" which states that for a call Ce and put Pe striking at K and if the forward is called F (with the same maturity as the one of options) one has (in absence of discounting which is ok assumption given that we are talking about 1 month options and interest rates are so low)
Ce - Pe = F - K
now since we are talking about american options it's true that the previous relation does not hold however the following can be said. As mentioned above the early exercise opportunity for the american call is worthless in the absence of dividend yield, so the calls ARE european options. For the puts, given that interest rate are so low there's hardly any chance to be willing to early exercise, but let's not even say that and assume that the american put Pa has a higher value than the european put. So Pa > Pe then one has
Pa > Ce - F + K
which is equivalent to saying that
Pa + F > Ce + K
in the absence of dividend yield or interest rate the forward value XMR/BTC should not be different than spot which is about 0.0043 when i am writing this (for those unaware, the forward value of XMR/BTC has nothing to do with the "most likely value" of XMR/BTC in one month time! so it makes perfect sense that the fair forward rate XMR/BTC in 1 month is the spot value today even if your are super bullish on XMR
).
why did i say all of this ? just to make you aware that if you buy a Put and buy XMR/BTC spot you will effectively construct for yourself a position that is even more valuable than a synthetic position K + Call.
why is it interesting ? because if you look at the current market prices displayed you will see that for the Sept maturity call with strike K=0.004 you can easily see that you could save close to 0.001 compared to buying the outright call that is sold for 0.00210
It is not possible to arbitrage rpietila because he is not providing a 2 way market however you see that you can still easily save you substantial money by buying puts + spot instead of calls
sorry for the long post, happy to elaborate if you have more questions about options!!
DISCLAIMER: i have no xmr holding and do not intend to build one in the next 72hours
i am just interested in seeing how this experimental option market will turn out!
for those considering buying call options be aware of the following fact from options.
in the case of european options (which are options that can only be exercised AT maturity and not before) there is something called the "put/call parity" which states that for a call Ce and put Pe striking at K and if the forward is called F (with the same maturity as the one of options) one has (in absence of discounting which is ok assumption given that we are talking about 1 month options and interest rates are so low)
Ce - Pe = F - K
now since we are talking about american options it's true that the previous relation does not hold however the following can be said. As mentioned above the early exercise opportunity for the american call is worthless in the absence of dividend yield, so the calls ARE european options. For the puts, given that interest rate are so low there's hardly any chance to be willing to early exercise, but let's not even say that and assume that the american put Pa has a higher value than the european put. So Pa > Pe then one has
Pa > Ce - F + K
which is equivalent to saying that
Pa + F > Ce + K
in the absence of dividend yield or interest rate the forward value XMR/BTC should not be different than spot which is about 0.0043 when i am writing this (for those unaware, the forward value of XMR/BTC has nothing to do with the "most likely value" of XMR/BTC in one month time! so it makes perfect sense that the fair forward rate XMR/BTC in 1 month is the spot value today even if your are super bullish on XMR
). why did i say all of this ? just to make you aware that if you buy a Put and buy XMR/BTC spot you will effectively construct for yourself a position that is even more valuable than a synthetic position K + Call.
why is it interesting ? because if you look at the current market prices displayed you will see that for the Sept maturity call with strike K=0.004 you can easily see that you could save close to 0.001 compared to buying the outright call that is sold for 0.00210
It is not possible to arbitrage rpietila because he is not providing a 2 way market however you see that you can still easily save you substantial money by buying puts + spot instead of calls
sorry for the long post, happy to elaborate if you have more questions about options!!
DISCLAIMER: i have no xmr holding and do not intend to build one in the next 72hours
i am just interested in seeing how this experimental option market will turn out!Of course XMR + Put is superior from a probability of profit standpoint (as shown by your lengthy explanation of put/call parity), but naked XMR is better still. People aren't (as far as I can tell) buying calls based on POP, they are buying them for the leverage. In this case, it's quite costly.