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Let's start off by putting the decimal points in the right place so we're all clear about where we are. I assume your call verticals have a combined delta of -.20. Your iwm position has a combined delta of .78. That would be .078 relative to the RUT. So your overall position delta...

I guess you could use the TOS thinkback feature to click back and look at the IV of the May SPY 75 straddle, day by day, if that's what you're interested in. But the skew being what it is in stock indexes - every strike trading at a higher IV than the strike above and at a lower IV than the...

Every public-domain pricing model I'm aware of uses a lognormal probability distribution. If anyone is actually using a different probability distribution, it's proprietary. But what people are really interested in is not so much the probability distribution. Rather, it's the implied...

Each and every strike trades at a different IV. Which IV do you want? If you want a weighted average, the VIX does a great job. It's calculated off the SPX options and not the ES, but arbitrage should keep the two closely in line. If you're thinking about a specific strike on a specific...

If you sell an option short, it's the same as selling an insurance policy. If you get assigned early, then essentially the person you've sold the insurance policy to is telling you "I'm cancelling that insurance policy you sold me before it expires. Don't bother to pay me back the unused...

Here's how you calculate the fair value of any bet. You have to know each possible outcome, the probability of each outcome, and the payout of each outcome. Then for each outcome you multiply the probability times the payout. Then you add all the products - and that is the fair value of that...

Thanks - good to know.

The regular VIX futures are $1,000 a point, and the options are 1/10 that - $100 a point. So if the new mini vix is also $100 a point, then the existing options are actually a 1 to 1 fit for the new mini-futures. It actually sounds as though the new mini futures were designed to be a better...

How many minis make a big?

...thinking perhaps he was hedging his bet? Boy, this gets better by the minute.

I'm just in awe at the poetry of this. The world's most disciplined investor - the ultimate hero/guru of the entire 1982-2007 bull market run - stakes the financial future of his company on a bet that in 10-18 years the market will be higher than it was at what will certainly turn out to be the...

I would buy that except for the undeniable fact that he DID make the trade. He DID sell those puts. So he must have felt he had a powerful rationale for doing so -- apparently, the one he expressed in his letter. If that was not his rationale for making this trade, then what was?

I'm taken aback by Buffett's narrow understanding of options. How ironic that the instruments Buffett called "Financial weapons of mass destruction" could prove to be his own undoing. Like straight out of a Greek tragedy where the hero unknowingly (but accurately) predicts his own demise.

What intrinsic value? In your scenario, your option went from being OTM (no intrinsic value) to ATM (still no intrinsic value). There won't be any intrinsic value until it goes ITM - that is, until your stock drops below 50 or goes above 150. To have $5000 intrinsic value, your stock would...

You never need to settle for less than the intrinsic value of an option on a futures contract. The clean easy way for you to lock in the intrinsic value is to simply buy a futures contract. Assuming the put is still ITM at expiration, your position will disappear when your short put is...

Like you, the only way I can make sense of an option chain is by looking at the IV pattern strike to strike - the skew. Absolute prices mean nothing to me. Maestro however seems to be saying he is looking for patterns in the prices themselves, independent of IV. But I should probably just let...

I actually think it's right the way I said it - although I'm not a statistician and I could be wrong. For one thing, if we use "anytime between now and a year from now" as opposed to "one year from now," then there is of course a 100% probability that the price will be between those two...

I have to disagree. Let's set aside for the moment the effect of lognormal distribution for simplicity's sake. If SPY is 80, then 40% volatility means a 1 standard deviation move over the next year is 32. That means there is approximately a 68% probability that one year from now, SPY will...

The crude oil contract is for 1000 barrels. So that $3 option will cost you $3000.

Yeah, I think they tried geek futures, but there were no bids.:)