I wheel NVDA almost exclusively, and I've noticed that the premiums for deep ITM CCs are always about 10-20% higher than selling a CSP at the same strike.

    They should theoretically be identical, since an ITM CC is basically a synthetic CSP.

    Anyone have any insight into this? Not sure why I would ever do a CSP in this case.

    I'm obviously referring to the adjusted premium on the ITM CCs, after stripping out intrinsic value differences.

    Premiums for ITM CCs consistently higher than CSPs at the same strike
    byu/DJ_Mimosa inoptions



    Posted by DJ_Mimosa

    3 Comments

    1. can you earn interest on your cash? If you can, i suspect after you add in the interest it will be equivalent. The spread should not be more than the risk free int.

    2. Gamma. 

      When interest rates are 0%, then you get perfect pricing. When interest rates are positive, you get a skew on the calls. When interest rates are negative, the puts will be more expensive.

      Although, historically, there is always a slight put skew so at 0%, the puts will be a few cents higher than the call.

    3. Higher interest rates increase call premiums. Put in call premiums would only be equal if the interest rate was zero.

      Dividends increased put premiums.

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