Why Exchange Option Implied Volatilities Can Differ for Puts and Calls

Summary

The document asks why exchange option chains can show different implied volatilities for European puts and calls with the same underlying and expiry, even though put-call parity links their prices. Its answer points to market supply and demand: stronger demand for puts used as hedges can raise put prices, and therefore their implied volatility, relative to calls. The reverse imbalance can favor calls.

This explanation describes how sentiment and hedging flows may appear in quoted option prices. It does not establish that every observed difference is caused by those forces or provide a method for checking an exchange’s IV calculation. The document gives no detailed treatment of parity inputs, such as rates, dividends, or contract conventions, and offers no data analysis. Its brief answer is best read as a possible market explanation rather than a complete account of discrepancies in displayed IVs.

Key ideas

• Put-call parity links European put and call prices when contract terms and relevant pricing inputs align.
• Unequal demand for puts and calls can create price differences that appear as different implied volatilities.
• Demand for protective puts may raise put implied volatility relative to call implied volatility.
• The explanation identifies a possible source of quoted differences but does not investigate exchange calculation details.

Tags

# On exchange websites why does put-call parity not hold?


# On exchange websites why does put-call parity not hold?












I've been looking at option chains on websites for some popular exchanges (NSE, etc). The exchanges usually provide an implied volatility column in their data, where they're presumably calculating the Black-Scholes or Black76 implied volatility quotes.

The implied volatilities for puts and calls are different despite these being European options (and so violating put call parity). Why is that the case?

As an example, see the IV column from an options snapshot on the NSE: https://www.nseindia.com/option-chain . The IV is not the same for calls and puts of the same expiry and underlying, despite options on the NSE being European style. The IV column shows quite significant differences between calls and puts.

## Answer by Sane (score 1)

https://quant.stackexchange.com/a/80741

While put-call parity should theoretically hold, real market conditions can lead to differences in implied volatility due to supply and demand dynamics, market sentiment, and the underlying risks perceived by investors.

For instance, the market dynamics for puts and calls can vary significantly based on investor sentiment. If there’s a higher demand for puts (for hedging purposes, for instance), this can lead to higher implied volatility for puts compared to calls, and vice versa.

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.