OTM puts vs OTM call

[AJJ]

With regard to skew I have a question:

Lets take the example:
Suppose that the future stock price is exactly 100.
And that you only have a 90 and 110 strike on that stock.

Which option value would be bigger: the 90 put or the 110 call?
And which option would have a bigger delta?

Thanks

 

[A Dashing Blade]

From the "Introduce yourself thread

Hi,

My name is Alexander (age 38) and I am Dutch.
I have been a market maker in stock options for over 6 years.
. . .

Er . . . and you don't know this stuff?

 

[arabianights]

lol!

Anyway common sense would suggest the call has more value and more delta so long as risk free interest rate is positive, but then again I dunno anything about options so I'm just reasoning from first principals.

 

[AJJ]

OTM call and puts

A Dashing Blade,

Er . . . and you don't know this stuff? Ha, That's funny.

To clearify.
The reason why I put this question online is because there is not one correct answer!
What I want to hear from interested persons is what there view is on this.

Normally the stock moves accoording to a lognormal path.
But If you ad skew, than you will deviate from this path and could end with a normal distribution.
Thus Put and call both the same prices and same delta's.

What are your ideas on this?

Thanks,

AJJ

 

[A Dashing Blade]

To clearify.
The reason why I put this question online is because there is not one correct answer!

Obviously.

What are your ideas on this?

1) I'm not sure that any model gives the same iv for similarly otm puts and calls on dividend paying stocks even if a normal distribution is required.
2) I personally think it extremely unwise to assume normal distribution in financial market space

 

[saiyar]

If this is a typical single stock options, then most probably the put will have the higher cost since both have 0 intrinsic and the volatility will be higher on the put, causing the time value in the put to be higher. The delta is the same.