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BP Prudhoe Bay Royalty Trust Message Board

valueprofessor 1 post  |  Last Activity: Mar 6, 2015 11:45 AM Member since: May 18, 2004
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    Sold April 60 puts @ 7

    by namevacus Feb 27, 2015 12:28 PM
    valueprofessor valueprofessor Mar 6, 2015 11:45 AM Flag

    Ordinarily, I would agree with your premise that the implied vol of puts and calls should be roughly the same for the same expiration and strike. BPT is a special case due to its being a "hard to borrow" security. The ordinary arbitrage one could do with a normal security is not available if one has to short the stock, buy a call and sell a put. BPT generally has a high "negative rebate" for institutional players wanting to short it. Thus, you see situations where the implied vol on calls is way less than on the puts. The high implied vol on BPT puts is thus due to a lot of demand to short the security (either directly short it) or by people wanting to short by buying puts. So I disagree - the high IV on puts does tell you something about possible direction.

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