Wednesday, May 12, 2010

Re: [TheOptionClub.com] Over/underpriced options

 

By definition, "trend" would mean the stock would stay in the particular direction, otherwise it would not be a trend. So this could work.
Altho there is no way to determine when the trend will no longer be a trend. With all the small movements each day hour, minute, one can never tell which small move will end up changing the bigger trend.
How do you compare an option trend with a stock trend?

Ross

--- On Wed, 5/12/10, Kae Man <kaeman50@yahoo.com> wrote:

From: Kae Man <kaeman50@yahoo.com>
Subject: Re: [TheOptionClub.com] Over/underpriced options
To: OptionClub@yahoogroups.com
Date: Wednesday, May 12, 2010, 8:55 AM



I think all that "typical" volatility analysis people do is a bit over-rated; it is fancy guessing.  Basically it is a 50/50 chance; either the option will go up or it will go down.  What I do is look at the historical trend of the option price as it closes every day, and then trend it against the underlying stock price movement; along with other market, sector indicators.  I think this is a more logical, simpler way of guessing (anticipating) price movement.  Does anyone else use this approach....

--- On Wed, 5/12/10, Ricky Jimenez <rickyjim@bestweb.net> wrote:

From: Ricky Jimenez <rickyjim@bestweb.net>
Subject: Re: [TheOptionClub.com] Over/underpriced options
To: OptionClub@yahoogroups.com
Date: Wednesday, May 12, 2010, 1:30 PM

 
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. com> wrote:

>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 ups.com [mailto:OptionClub@yahoogro ups.com] On
>Behalf Of Sveta
>Sent: Monday, May 10, 2010 11:08 PM
>To: OptionClub@yahoogro ups.com
>Subject: [TheOptionClub. com] Over/underpriced options
>
>
>
>
>
>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
>
>




__._,_.___
Recent Activity:
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
MARKETPLACE

Stay on top of your group activity without leaving the page you're on - Get the Yahoo! Toolbar now.

Get great advice about dogs and cats. Visit the Dog & Cat Answers Center.

Hobbies & Activities Zone: Find others who share your passions! Explore new interests.

.

__,_._,___
Posted by at

No comments:

Post a Comment

Subscribe to: Post Comments (Atom)