Kenneth; You can pay attention to implied volitility, and loose money also; people do it every day. Implied volitility has some value, but to me understanding the underlying stock and the direction makes is a more logical roll of the dice. If you can predict direction, that doesn't mean you go out and buy an option at a bad price; will implied volitility help you with this??
In my view, the value in the data is what the historical movement is and models that you create to analyze it. Once you can see the range of the bottom of the down swing in the price; you can put a percentage cap on the up swing. If a stock moves up 30%, I do believe you should make money on just about any of its options; except for maybe the leap.... I am no expert, I am just saying what works for me.
--- On Wed, 5/12/10, Kenneth Ginsberg <ken_ginsberg@yahoo.com> wrote:
From: Kenneth Ginsberg <ken_ginsberg@yahoo.com>
Subject: RE: [TheOptionClub.com] Over/underpriced options
To: OptionClub@yahoogroups.com
Date: Wednesday, May 12, 2010, 2:11 PM
If you ignore the potential effects of [implied] volatility (increasing, decreasing, or staying the same), you can be 100% correct on direction, timing, and size of movement and still lose money. Ken From: OptionClub@yahoogro ups.com [mailto:OptionClub@ yahoogroups. com] On Behalf Of Kae Man
Sent: Wednesday, May 12, 2010 9:55 AM
To: OptionClub@yahoogro ups.com
Subject: Re: [TheOptionClub. com] Over/underpriced options | 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@yahoogro ups.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
>
> |
|
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