The reason call options are more expensive than put options ATM (at the money)

It has been a popular myth that the reason that calls trade higher than puts, when the options are at the money, is due to the fact that stocks can only drop to zero for the puts, but can go as high as infinity for the calls.  Sounds great on the surface.  But again this is another myth perpetuated by the uneducated in the seminar industry.

The real reason that calls trade higher than puts is due to the cost of carry for the stock.  Remember that a call option gives you the right to buy the stock.  If you had to buy the stock, your money would tied up in the stock and not in the bank earning interest.  That interest component must be added to the call price.  This is the real reason calls are more expensive than puts.  It is not a mystery or a made up answer about stocks being able to rise to infinity.

Happy Trading!

Peter Zomaya

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One Response to The reason call options are more expensive than put options ATM (at the money)

  1. Sorry, but I don’t follow any other blogs or forums.

    Regards,

    Peter

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