Bids below intrinsic value

[.sigma]

Well there's pennies and pennies. Some have a market cap of a couple of millions, others (like) this one, nearing 100 billions. I would expect to be able to trade options on an underlier that's worth $100B in the market.

Lets say $FFF spot is $1.00

Lets say the $1 call is worth $1.55, is this possible?

Only reason I ask is because we know implied vol can go above 100%, and i think Haug or someone proved option premium "could" in theory go negative. Negative premium. Jeez, i'm bored. lol

 

[Aquarians]

Lets say $FFF spot is $1.00

Lets say the $1 call is worth $1.55, is this possible?

Only reason I ask is because we know implied vol can go above 100%, and i think Haug or someone proved option premium "could" in theory go negative. Negative premium. Jeez, i'm bored. lol

Out of the bat I'd say, why not? Assuming you meant call and not put, spot can go up to infinity, vol can be infinite so of course.

But then exception! Tried http://www.option-price.com/index.php with spot = 1, strike = 1, days = 365, interest = 0, dividend = 0, vol = 250% and so far so good, call price = 0.789. Increase vol 10x, call price = 1?! Increase time 10x, call still 1, wtf?!

Thought maybe stupid web page exception / limitation so try in my Java application, manually coded Black Scholes formula, same result. W. T. F?!

Must be some asymptotic behavior in the formula, it just doesn't handle these limit cases well. If vol is infinite and time is infinite, I still hold that spot price can go to infinity so the fair value of a call should be infinite and not one!

 

[narafa]

Out of the bat I'd say, why not? Assuming you meant call and not put, spot can go up to infinity, vol can be infinite so of course.

But then exception! Tried http://www.option-price.com/index.php with spot = 1, strike = 1, days = 365, interest = 0, dividend = 0, vol = 250% and so far so good, call price = 0.789. Increase vol 10x, call price = 1?! Increase time 10x, call still 1, wtf?!

Thought maybe stupid web page exception / limitation so try in my Java application, manually coded Black Scholes formula, same result. W. T. F?!

Must be some asymptotic behavior in the formula, it just doesn't handle these limit cases well. If vol is infinite and time is infinite, I still hold that spot price can go to infinity so the fair value of a call should be infinite and not one!

Of course it will always be like this. If the $1 call is priced at more than $1 (While the underlying is trading at $1) it will create a risk-free arbitrage situation, for example if the $1 call happens to be priced in the market for $1.3, anyone would simply buy the underlying at $1 and write covered calls at $1.3 pocketing a totally risk free $0.3, irrespective of the implied volatility.

And ATM or OTM option can not be greater than the stock price (irrespective of the implied volatility, even if you increase the implied volatility by 100x. The same goes for the ITM options, as you increase the IV, their value will approach Stock price = Call Price + Strike. IV is irrelevant in this case.