The problem is that the original question was unclear since the OP did
not exactly say how it was determined that the options were overpriced
by 10 cents. I would guess that Sveta put the option into a
calculator and entered a volatility which turned out to be less than
the current IV of the option in question. Was the 10 cents the
difference between the midpoint of the bid/ask spread of the actual
trading option versus what was determined from the calculator? I am
surprised it was that close.
On Wed, 12 May 2010 05:34:43 -0600, "Dennis Alverson"
<alv70669@gmail.
>It is debatable of whether options are every over or under priced. Because
>the speed and liquidity of the market place, option prices are typically
>what they should be based on the forces of supply and demand. The option
>pricing models are just that, models. The price of an option is determined
>by the pressures of supply and demand. For instance, the price of the option
>determines the IV of that option when plugged in to the Black-Scholes
>pricing model. The IV does not determine the price, but is a reflection of
>the price. When you write or short an option, you are making an IV or time
>play, i.e. you are betting the IV will drop or the option will decay over
>time. IV and time decay are strongly related an affect the extrinsic value
>of an option.
>
>
>
> _____
>
>From: OptionClub@yahoogro
>Behalf Of Sveta
>Sent: Monday, May 10, 2010 11:08 PM
>To: OptionClub@yahoogro
>Subject: [TheOptionClub.
>
>
>
>
>
>How much does an option have to be over or under priced to be considered
>just that? I put a couple of options through Black-Scholes and they were
>overpriced by 10 cents. Or does it have to be overpriced more then that to
>be considered for writing?
>Thanks guys
>
>
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