At a given strike price of an index/stock, why are call options more expensive than PEs of same strike price?
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It could be because more people think that the market is bullish and create a demand for that particular index/stock.
Option Premium=(Intrinsic Value+Volatility Value+Time Value+InterestRate Value).
With other factors remaining same, Volatility Value varies depending on Supply/Demand. Supply/Demand varies based on Market expectation. Finally, according to the market expectation, the option premium pricing happens.
Also, keep in mind that, any of the above factors can start taking prominence at any point of time.
Always the call options tend to be costlier than put options (keeping other parameters same)
This is called Put-Call parity.
http://www.theoptionsguide.com/understanding-put-call-parity.aspx
Have noticed this case even during bearish markets
It depends on people’s perception. What seems to be bearish/bullish in smaller time frame could well be the opposite in the longer time frame.
Thanks Vikram, thought there should be a simple and logical explanation but all this sounds complicated and beyond my comprehensive levels. Do people really do so many calculations before buying/short selling?
True, it is complicated.
No complex calculations Vidya, all you have to remember is put options are little lesser valued than call options of same strike. This idea plays role only in terms of combined option strategies.
Ex: You buy a put and sell a call simultaneously (you know calls are costlier than puts). Your cost of buying the put will become significantly lower as you have sold a call option.
Likewise other strategies too.
But if you are buying and selling options in normal way, this doesnt matter.
Also Karthik gives a simple equation here, why puts are cheaper than calls. Just dont try to calculate anything with that (present value of option may be little trickier to understand).
http://tradingqna.com/5286/why-otm-call-is-more-than-itm-put?show=5291#a5291
@AGuru, “(present value of option may be little trickier to understand)”, does trickier mean ‘More Complicated’?
@Sukam
Yeah, little complicated.
I have tried to explain here. http://tradingqna.com/1653/what-does-the-phrase-present-value-of-strike-price-imply
See whether you could catch it!
In fact the same has been answered earlier - http://tradingqna.com/5286/why-otm-call-is-more-than-itm-put?show=5291#a5291
Yeah, thanks. I searched for this post of yours, while answering. Could not find it, hence provided a external link.