Can you judge which way a stocks price will swing by the cost of the call to the cost of the put strike surrou

Question

nding the present price of the underlying security? So that if the security of stock price lay equally between the call and the put surrounding that it should cost the same for either a call or put all things being equal or neutral and that therefore there is no predicatble price swing in that period?

Answer 1

No, you cannot judge which way a stocks price will swing by the cost of the call to the cost of the put strike surrou
nding the present price of the underlying security.

Due to a principle called "put-call parity" there is a fixed relationship between the price of a put and the price of a call on the same underlying security. If you want more information on the subject, see

http://economics.about.com/od/economicsglossary/g/putcall.htm

If the stock price lay equally between the call and the put surrounding, the call will always trade at a higher price.

I also want to correct the first answer to this question. It said:

"A put or call is valued using statistical methods based on 1) the current price of the security, 2) the volatility of that security's price, and 3) the duration of the put or call. "

A put or call is valued based on

(1) the stock price
(2) the strike price
(3) the amount of volatility expected in the stock price before expiration (called implied volatility)
(4) the risk-free interest rate
(5) the amount of time before expiration
(6) dividends expected before expiration

Answer 2

A put or call is valued using statistical methods based on 1) the current price of the security, 2) the volatility of that security's price, and 3) the duration of the put or call.