Intuitively, at-the-money (ATM) calls and puts should be priced the same. In most instances, this is not the case. ATM calls are generally priced higher than ATM puts. Why? The reason would center around the cost of carry. The buyer of a call can keep cash in their account, instead of purchasing the shares and earn interest on that cash; while the put buyer foregoes the opportunity to receive cash benefit of a similar amount. We would expect the difference in price between the ATM call and put to closely resemble the cost of carry of the strike price, which relates to the current short-term interest rate. In this article, we will investigate this with Apple Computer (Nasdaq: AAPL), an options calculator – using a 0% interest rate then start moving the rate higher and observing how the call and put prices change. We are making the assumptions of no dividend or hard to borrow scenarios (stocks that are hard to borrow for short sale transactions).

What is Rho?

Although not considered a major Greek, Rho measures the change in the option price due to a change in interest rates.

AAPL: $185.00 ATM call strike: 0% interest (red arrow top)

AAPL: $185.00 ATM put strike: 0% interest (red arrow top)

The theoretical option price for the $185.00 call is $5.137 per share (exact price as the call option). We inserted the ATM implied volatility stat of 23% (as with the call).

AAPL: $185.00 ATM call and put strikes: 1% interest

With interest rate now a factor, we would expect the cost of carry to enhance call value when compared to put value. In the screenshot above, we see call value at $5.095 per-share, compared to put value at $4.942 per-share. Let’s increase the hypothetical interest rate by 100 basis points to 2%.

AAPL: $185.00 ATM call and put strikes: 2% interest

In the screenshot above, we see call value at $5.175 per-share, compared to put value at $4.872 per-share. The difference between call and put value increased as the interest rate increased, accounting for the disparity between ATM call and put strike premiums.

Discussion

Interest rates (Rho) play a minor role in option prices, but is a factor, nonetheless. This relates to the cost of carry benefit inherent in buying call options which is not implicit with put options. Exceptions can occur due to the existence of dividends or a hard to borrow situation on the shares.

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Exit Strategies for Covered Call Writing and Selling Cash-Secured Puts

This book contains 27 chapters of exit strategy information associated with covered call writing and selling cash-secured puts. My goal when authoring this book was to create the most extensive publication ever published on position management for these strategies.

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June 4, 2024

11 AM ET – 12 PM ET

Covered Call Writing: Multiple Applications Based on Current

Market Conditions

Real-life examples with Invesco QQQ Trust (Nasdaq: QQQ)

Covered call writing is a low-risk option-selling strategy geared to generating cash flow with capital preservation a key requirement. This presentation will demonstrate how the strategy can be crafted to benefit in all market environments. Market situations highlighted are:

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A popular large-cap technology exchange-traded fund, Invesco QQQ Trust, will be used to establish rules and guidelines to benefit in these market circumstances.

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July 18, 2024

Exit Strategy Choices After Exercise of Cash-Secured Puts

When we sell cash-secured puts, we are undertaking the contractual obligation to buy shares at the strike price by the expiration date. Typically, we only sell puts on elite-performers that we would be agreeable to own in our portfolio.

This presentation will analyze 4 potential exit strategy opportunities to consider should the put option be exercised. Information on the following strategies will be highlighted:

• Selling the stock
• Holding the stock in our long-term buy-and-hold portfolio
• Write a covered call (PCP or “wheel” strategy)
• Implement the Stock Repair Strategy

In addition to these strategies, the following topics will also be included in the webinar:

• Option basics for selling cash-secured puts
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• Event super discount offer

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August 1, 2024

Presentation #1: 8:45 AM – 10:45 AM

Paris Hotel, Las Vegas

Covered Call Writing & Selling Cash-Secured Puts to Generate Consistent Cash Flow

Basic & advanced principles for trading low-risk stock options with capital preservation in mind

This presentation will detail stock selection, option selection and position management, the 3 required skills to become elite covered call writers and put sellers. It will also include ultra-conservative approaches to these strategies using Delta and implied volatility to create statistically beneficial trades. Rules and guidelines will be discussed to take the emotions out of our trades resulting in high-probability positive outcomes.

Detailed analysis will be provided regarding how to craft our trades to the current market environment, personal risk-tolerance and strategy return goals.

A multi-tiered option-selling strategy which combines both covered call writing and selling cash-secured puts will also be examined. It is known as the PCP (put-call-put) or “wheel strategy.”

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