Wednesday, May 12, 2010

RE: [TheOptionClub.com] Over/underpriced options

 

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@yahoogroups.com [mailto:OptionClub@yahoogroups.com] On Behalf Of Kae Man
Sent: Wednesday, May 12, 2010 9:55 AM
To: OptionClub@yahoogroups.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@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
>
>

 

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