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Let's go ! I think It's like trying to learn how to sail in a bathroom. Now if we take Donnap's example, - a 3 years call 47 with 5% volatility spot 47 with a delta around 0.5173 that is a $1.62 premium (with interest rate set to 0). Now if you put your interest rate from 0% to 0.1%...

I do agree. Knowledge has to be shared. That's why I posted the derivation. There is no secret here and I wonder why Tradingjournals wanted to make it a mystery. The second point is that it's useless. As far as you put some rates in it, as in real life, things start to get really fuzzy.

Sometime.

Donnap's example was a 3 years call vol=5% in a BSM world :)

Okay I think I got it :D You derived it like that: 2*spot*(delta-0.5) ATM, N(d1) and N(d2) are symmetrical around 0.5. That means, N(d1)-N(d2)=2*(N(d1)-0.5)=2*(delta-0.5) Because there is 0 cost of cary, ATM S=K And a call is C=SN(d1)-K(Nd2) C=SN(d1)-SN(d2)...

"The "delta" however doesn't tell us anything about probability of ending in the money." Very good point . If you ever try to price a simple barrier, close to the trigger you'd get delta around 10000%. Hence I agree, it has nothing to do with a probability. It's just an hedge ratio. This...

Well let's go :cool: How do you derive it ? (I stated that you implicitly get your numbers from the deltas, because every public sofwares do the same just as TOS does.)

Hi Magic Sorry, but you don't :D Where on earth did you get people know the right probabilities of an asset to be at a particular level :) There are a lots of misconceptions about probabilities and deltas. Delta is not the probability an asset to reach a level. But this is widely...

Good luck. Masteratwork

This is one of the riskiest strategies. If the underlying moves slowly up (low vol) you'd lose money on both, spot and option. Masteratwork

Hi, Some informations here : http://www.classiccmp.org/transputer/finengineer/%5BGlobal%20Derivatives%202005,%20Dupire%5D%20Exploring%20Volatility%20Derivatives%20-%20New%20Advances%20in%20Modelling.pdf http://math.uchicago.edu/~sbossu/VarSwaps.pdf Hope it helps. Masteratwork

If you already have a fair value in mind, you don't care about market prices. What you care is realized volatility until maturity. That way you 'd price your option using your own volatility forecast. If market prices are meaningful then you're try to get a market opportunity. That way, you'd...

So this is Wealth (t+1)=Wealth (t)*1.5 if "tails" Wealth (t+1)=Wealth (t)*0.75 if "heads" The good point is that 1.5*0.75=1.125. Hence a down movement followed by an up movement or an up movement followed by a down movement make finally a rise of 12.5%. It's a good starting point.

"No offense..." Cooldown, that was just a joke . What I see is just that you're averaging your position. It's just like to say : guys, you could buy 10 shares of this stock, but just buy 5 of them and invest the rest of your money in a cash account. If the stock drops, buy 2 more shares and...

No offense, but if you just bought and held $, it would be worth $1000 ! What makes your assumption of long term profits holding ? I took only the movements you did. But we can go ahead with the movements of your choice. Masteratwork

I agree your datas If you want, but I still don't get your point. You got a portfolio that was worth $1000 ans is now $562.5. Where on earth did you make some profits ? I'm really sorry but don't get it. I hope that it's more subtle than "I make profit in euros, but a loss in $". So...

Hi Sambian, So you started with $500 and €500 1-If €/$ = 1 then your portfolio is worth $1000 or €1000 2-If €/$ = 0.5 your portfolio is always $500 + €500 But is worth $500+$250=$750 or €1000+€500=€1500 Now “We buy euros with half of our dollars, and...

Implied risk neutral distribution is the risk neutral distribution extracted from market option prices. This risk neutral probability distribution, that is not the real one which can't be known, is just a tool to simplify pricing stuff for exotic options for example. If there are different...

Kevin, Another name was "market gamma" some years ago.

ha ha ha, my bad, you're right :) . Masteratwork