10% OTM Call vs Put Prices

This question focuses on pricing and intuition for European options that are symmetrically out-of-the-money, one call and one put, on the same underlying. The candidate is asked to reason about which contract should be worth more and why, under standard assumptions about how asset prices evolve. It probes whether the interviewee understands that even when strikes are chosen "symmetrically" around the current price in percentage terms, the payoff distributions of calls and puts interact very differently with the underlying's return distribution. The setup is typical of derivatives, structuring, and quantitative trading interviews where option intuition and risk thinking matter.

To answer well, the candidate must recognize that common pricing models assume a particular shape for the underlying's return distribution and that this shape is not symmetric. The question leans on lognormal dynamics, tail behavior, and how unbounded upside versus bounded downside affect expected payoff. An interviewer is watching for clear reasoning about skewness, payoff convexity, and the lower bound at zero, rather than memorized facts or Black–Scholes formula manipulation.

What it tests

For options on assets whose returns are lognormally distributed, the distribution's right-skewness fundamentally shapes option values. This skewness means that large positive moves in the underlying asset are more probable than equally large negative moves, even if the mean is centered. As a result, instruments like European calls (with unbounded upside) capture more of this 'tail risk' than puts, whose payoffs are capped by the asset's price floor. The lack of symmetry in both the distribution and the payoff structures means that, for equidistant out-of-the-money strikes, calls will generally be more valuable than puts. This principle holds regardless of the specific asset, as long as the underlying price process is multiplicative and unbounded above, but bounded below by zero.