Newbie question on premium

[A Dashing Blade]

D. I. V. D. E. N. D. S.

 

[Martinghoul]

My specialty is learning from my mistakes, naivety, errors and omissions. I don't claim any special knowledge or expertise - so please help me understand so I can grow. Your general disclaimer has my attention. Could you be more specific?

Firstly, whether it's American vs European makes virtually no difference in this case, so using "American IV" is not very important.

Secondly, your description of 'implied vol correcting the theoretical price to the mkt price' is all wrong. There is NO theoretical price without an implied vol.

Thirdly, most of the disparity between the $10 put and the $9 put is, basically, just due to the fact that one strike is more in-the-money than the other.

Finally, what you say in your last paragraph makes no sense whatsoever. 'Put-call parity' cannot favor puts over calls (this holds for all European options and American options held to expiry). There is no 'arbitrage'. If your software tells you different, you can probably throw it away.

 

[Martinghoul]

My specialty is learning from my mistakes, naivety, errors and omissions. I don't claim any special knowledge or expertise - so please help me understand so I can grow. Your general disclaimer has my attention. Could you be more specific?

Firstly, whether it's American vs European makes virtually no difference in this case, so using "American IV" is not very important.

Secondly, your description of 'implied vol correcting the theoretical price to the mkt price' is all wrong. There is NO theoretical price without an implied vol.

Thirdly, most of the disparity between the $10 put and the $9 put is, basically, just due to the fact that one strike is more in-the-money than the other. The skew effect adds a bit more (the $10 strike is further ATM than $9, which makes its vol higher).

Finally, what you say in your last paragraph makes no sense whatsoever. 'Put-call parity' cannot favor puts over calls (this holds for all European options and American options held to expiry). There is no 'arbitrage'. If your software tells you different, you can probably throw it away.