and then when you try and capitalize on the "professionals" stupid flaw in pricing - good luck getting the flawed price you see on the quote. it will be updated to the correct price and the flaw that "paper traders" theorize about will be sold as hope to the unwitting.
Peace Mark,
Kindly; I believe you're missing the point. If you look at HOW options are priced via the models used by option dealers today(Black-Scholes/ARCH/GARCH/other techniques), you'll come to realize they have major flaws in them.
Today, option dealers efficiently price their options in accordance with their models, so there will not be any option price inefficiency in the market place if you take this view.
BUT, the inefficiency is in the fact that the entire model doesn't properly take into account tail risk, and can be argued that it underprices large deviations(which do occur; rarely). They tried to take better account of tail option pricing with the volatility smile and other methods which came about after the 1987 Black Monday crash; this is when volatility was assumed to be constant.
Options are priced using Gaussian, when Power Law distribution makes more sense.
Point being, there can be found cheap tail option buys in the marketplace today, but the option dealer believes it's not cheap and that it is properly priced using his models. Model error occurs more frequently than you might think. They make money majority of the time. This is why they feel as tho they are winning, when in reality, they'll soon lose. So they don't care to change.
How do you think people make 50x return, 100x return on options? Those dealers are getting killed, especially if they're dynamically hedging the option they sold. All the money they make during normal day-to-day action are all gone in 1 event, while the buyer rejoices in his awareness that model error occurs more frequently than not and big money can be made when the unexpected occurs.
Peace,
Amahrix
