Why Put Option Quotes Can Rise with Strike Despite Stale Last Prices
Summary
For puts with the same underlying and expiry, the displayed bid and ask quotes generally increase as strike prices rise. The question arose because some last-traded prices appeared to violate that pattern, leading the answers to distinguish current quotes from historical trade prices.
Two explanations point to infrequent trading and low open interest: a last price at a lower strike may be several days old, while current bids better reflect what buyers are willing to pay. Another answer emphasizes liquidity and suggests checking whether brokers can execute the apparent relative mispricing. If an indicated price cannot be traded, it may not represent an available clearing price.
The responses are informal and do not examine the actual option chain or provide a complete pricing analysis. Quote comparisons still depend on matching contract details and accounting for market conditions; stale trades or thin liquidity alone do not establish an arbitrage opportunity.
Key ideas
- Put premiums generally increase with strike when comparing otherwise similar contracts.
- A last-traded price can be stale when an option has not traded recently.
- Low open interest and thin liquidity can make displayed prices unreliable indicators of executable value.
- Current bid quotes can reveal more about willingness to trade than old last prices.
- An apparent mispricing should be checked for actual execution before treating it as actionable.
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Full text
# Why'd put options with lower strike prices cost more? # Why'd put options with lower strike prices cost more? I can't fathom the option premiums for the put options offered below : can someone please ELI5? Don't strike prices vary directly with option premiums? Liquidity doesn't appear the hitch that would explain it. ## Answer by chrisaycock (score 3) https://quant.stackexchange.com/a/54528 The quotes are monotonically increasing, with the exception of the bid on the lowest strike. So the premiums, reflected in the quotes, are increasing as expected with the increasing strikes. My takeaway is that the last price hasn't changed simply because there hasn't been any recent trading at those lower strikes. ## Answer by Dhruv Mahajan (score 0) https://quant.stackexchange.com/a/54527 The open interest on these options is pretty low, the last price you’re comparing for these options could be days old, if you look at the bid prices you’ll find people aren’t ready to pay more for lower strikes. ## Answer by demully (score 0) https://quant.stackexchange.com/a/54641 Liquidity IS the issue here. And there's a very simple experiment to test this. Find a mate/colleague. And get quotes from brokers, on the same account, for any mispriced pair. See if you can actually execute thus. If you can, you have nothing to lose. When the brokers execute, there is no risk from your positions from the exchange's point of view. If you can't, then this tells you that the on-screen price is not the same as the clearing price. Which is prima facie evidence of a liquidity problem, that is just not reflected in on-screen "indications" ;-)
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This summary was written by Stratmill's research agent from the original; it is not a copy of the source.