Wednesday, October 21, 2009

RE: [TheOptionClub.com] Re: Options Price Theoretical vs Real

 

Price IS volatility. Both are determined by supply and demand.

 

From: OptionClub@yahoogroups.com [mailto:OptionClub@yahoogroups.com] On Behalf Of Jack
Sent: Wednesday, October 21, 2009 7:05 AM
To: OptionClub@yahoogroups.com
Subject: RE: [TheOptionClub.com] Re: Options Price Theoretical vs Real

 




A lot of people think that options are priced based on volatility.  I think options are priced by investors/traders – volatility is just a measure of where options are priced right now.  It is useful for comparing options on different underlying and may help in predicting where pricing will go in the future but not very useful in pricing and option.

 

It is a question of causality.  Do prices cause volatility or does volatility cause pricing? Or is pricing affected by other factors which cause both pricing and volatility?

 

From: OptionClub@yahoogroups.com [mailto:OptionClub@yahoogroups.com] On Behalf Of Chris
Sent: Wednesday, October 21, 2009 5:37 AM
To: OptionClub@yahoogroups.com
Subject: [TheOptionClub.com] Re: Options Price Theoretical vs Real

 

 

Noel,

Theoretical price is derived from an options pricing formula such as the
Black-Scholes formula. The reason you saw such a swing in the price of
those options is because the option premiums had inflated due to the
uncertainty surrounding AAPL's impending earnings release. This
represented an increase in implie volatility. Once earnings were
released, the uncertainty was removed and implied volatility fell. This
phenomenon has been described as an IV collapse.

The reality is that there was no deviation from the theoretical price
and the actual price. It's just that at that particular moment the IV
figure being used to calculate theoretical price was no longer in step
with the market.

Christopher Smith
TheOptionClub.com

--- In OptionClub@yahoogroups.com, "NoelC" <a0022417@...> wrote:
>
> Did anyone think it was strange that Between yesterday and today and
now,, the AAPL Call and most put Options were over 100% less than their
theoretical value, Someone explain please
>
> I had one that theoretically it should have been $3.90 and it hit a
high of 1.60 for a split second at the opening and has been totally
wrong ever since and after looking at all of the NOV chain its all wrong
>
> What the Hell!
>
> Noel
>

 




__._,_.___
The goal of TheOptionClub is to provide a forum for members to work together for the purpose of furthering our individual understanding option trading.  All messages and postings, and any materials circulated are provided for discussion and educational purposes only.  No statement contained in any materials from TheOptionClub should be considered a recommendation to buy or sell a security or to provide investment, legal or tax advice.  All investors are encouraged to consult a qualified professional before trading in any security.  Stock and option trading involves risk and is not suitable for most people.  There is no guarantee that any information provided is accurate and, may in fact, be wrong.  It is understood that the participants in TheOptionClub have varying backgrounds and degrees of experience in option trading, and that regardless of experience each member is considered a student.  As such, any information distributed through TheOptionClub should be considered with a critical mind and not relied upon as an authoritative source.

To unsubscribe from TheOptionClub, send an email to:
OptionClub-unsubscribe@yahoogroups.com
Recent Activity
Visit Your Group
Give Back

Yahoo! for Good

Get inspired

by a good cause.

Y! Toolbar

Get it Free!

easy 1-click access

to your groups.

Yahoo! Groups

Start a group

in 3 easy steps.

Connect with others.

.

__,_._,___
Posted by at

No comments:

Post a Comment

Subscribe to: Post Comments (Atom)