Hi, I have learnt Option Trading Strageties in Python: intermediate and it teaches us a session on volatility skew.
As I have marked ATM call price and ATM put price of Hangseng Index(with the same strike price) when closing every day and I find in some trading days, the difference between ATM call and ATM short is quite big sometimes. The situation is quite interesting, does it mean any arbitrage opprtunity exists? Thanks.
Hi Iris,
The price of ATM call and ATM put are mostly different as Put IV is usually higher than Call IV. Arbitrage can be considered if the price difference is extraordinarily high.
However, you would need to thoroughly backtest this before taking live trades. Also, it would be better if bid-ask values are used instead of LTP.
Moreover, this is not a Volatility skew, as skew happens when there is a difference in OTM Put and OTM Call IVs that are equidistant from the ATM.
Hope this helps!
Thanks,
Akshay