From Theory To Practice - April 12, 2021 - Why Do Call Spreads Usually Cost More?

published 3 weeks ago by tastytrade, Inc.

An interesting phenomenon of the options market is that an at-the-money Call Spread almost always costs more than an at-the-money Put Spread in an equity index product. Even though these strategies are 50-50 shots, the Call Spread is systematically more expensive than the Put Spread. As we look to add a new Call Spread in SPY to the portfolio, we explain the reasoning behind this pricing difference, which can be traced back to volatility smiles and volatility smirks.

more episodes from The tastytrade network