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The difference between the Black model and the Black-Scholes model is the way interest rates are handled. In the BS model - which is meant for equities - you enter 1 interest rate, but internally the model uses it twice. First, the model uses it to calculate the forward price of the stock...

The equity options are set to American. The index options give you a choice of American or European, but whichever you set it to, they come up with different prices. I set the dividends and interest rates to zero, so that doesn't explain it. And there's no input for tax treatment...

The Hoadley Excel add-in system now connects with IB. I don't think you can download your positions, but you can set up a spreadsheet with your positions, and it will update in real-time with quotes from IB. It also contains an "options strategy evaluation tool" and an "open position manager."...

Using VIX futures to hedge the delta risk of your short puts? I think you're comparing apples and oranges. Let's think this through. If you sell puts, you face 3 categories of risk - delta risk, gamma risk, and vega risk. If you buy VIX futures at the right ratio, you are somewhat...

GARCH is a separate category; it is not used to compute implied volatility, rather, it looks back at price data and computes actual (historic) volatility. Any pricing model can be used to produce an implied volatility. You just keep feeding different volatilities (guesses) into the model...

If you're not valuing options that are deep in the money (subject to early exercise), then any of these models are going to give virtually identical values. Unless you're doing big size, you can use Black Scholes, binomial, Bjerksund Stensland, Whaley (quadratic), or whatever and the difference...

To add to my previous post - I used to trade next to a guy named Darrell who had a backer, and their deal was that every month they would split the profits of his trading. But if there was a loss Darrell would not participate, and wouldn't have to give money back. So he just sold gobs of...

Well said - that's pretty much the short-premium and long-premium games in a nutshell. Not that it's impossible to improve those odds, but it requires that you find an edge somewhere. It's not easy. Don't believe you can just routinely buy premium or sell premium over time and make money.

There’s actually a sound fundamental reason that futures option pits continue to thrive, and it goes beyond any political considerations or pressure by members. It has to do with the different style of trading in options on futures, which the electronic still has not adapted to. How’s...

Right. The delta on those puts was .31 so you'd buy 31 futures. Newbie question but hey, you said you're a newbie! ED options are very actively traded electronically too - I believe they are THE most traded electronic futures options. YT - ED options (and futures) are set up and...

The best bid and the best offer are the only bids and offers that count. The locals don't all necessarily agree, but if the best bid is 3 and you're a local who only wants to pay 2, you don't have the right to voice a 2 bid when there is still an active 3 bid. The exception is when a...

YT - which floor are you on? I'm told sheets are still in vogue in futures option pits. I'm attaching a simple theoretical value sheet (usually called "delta sheet") for crude oil. If at a given moment crude is trading at 140.05, then you use that row to make markets, and ignore the rest of...

Normally, the difference between models used to calculate options on indexes and options on stock is the way dividends are handled. Index options are calculated using a continuous yield, while stock options are calculated using discrete payouts. The inputs for these calculators reflects that...

It's not a matter of right or wrong implied volatilities, it's a matter of relationships between the implied volatilities of different options. These relationships can become temporarily distorted. If you can find such distortions, you may be able to exploit them by doing a spread. Spreading...

Good call again - MYGN is up $4.82 as we speak. Hats off. Magicz - if you don't mind - what do you use for sources of info on the biotech sector? Thx.

The VIX is looking a little lighter today, n'est-ce pas? None of that "heaviness" we saw Friday. Premium buyers are finally beginning to notice that the S&P is approaching major support. It's also crossed over the futures for the first time in some while, with the VIX now trading above the...

When you are considering possible trades, are you looking at the implied volatilities of the options in the calendars and verticals, trying to find spreads where the differential is attractive?

The percentages I quoted are implied volatilities - the only meaningful way to express the cheapness or expensiveness of an option. The normal pattern these days is for the otm puts to be most expensive (in terms of IV), the otm calls to be the least expensive, and the atm's somewhere in the...

The options of USO actually exhibit a classic "smile" of volatility - somewhat rare these days. The ATM's trade at the lowest IV's, and the OTM puts and calls trade at higher IV's. So if you buy the 100's and sell the 110's, you are buying more expensive volatility, and selling cheaper...

You have to get your edge somewhere. One way is to have a better-than-average ability to make odds on what the underlying will do. Some can do that with fundamental analysis, some can do it with technical analysis. If you don't have an edge in odds-making the underlying, you'll have to find...