We buy options , but the option formula pricing is innefficient.The option formula does not price in volatility of unexpected events
examples of unexpected events
1)stock market bubble
2)chinese devaluation impact on stock market bubbles bursting
3)greek crisis /financial crisis /euro crisis
4)profit warnings
5) fraud by corporate companies
6) other unexpected events like war ,terrorism etc
Option formula is a zero sum formula , neither has an edge i.e buyer seller .Both can lose.
The option formula does not take account of
1)trends ........it assumes zero edge for trends
2)Support /resistance supports hold up very well in stockmarkets indices guaranteed by the fed put
3)advanced option trading with rollover and multiple exits and entries.Rollover adds 30 % to my strategy
4) individual skills
if you buy options , at time of buying options these unexpected factors are not priced into the option price , option buyers gain when these unexpected events happen , as prices become extremely volatile and unpredictable.
Additional edge to beat the option formula can be found in systems designed to beat the formula , example progressive betting formulas on the option pricing models or systems and combinations of unique option strategies designed to beat the option formula.
http://www.investopedia.com/university/options-pricing/black-scholes-model.asp
The model makes certain assumptions, including:
- The options are European and can only be exercised at expiration
- No dividends are paid out during the life of the option
- Efficient markets (i.e., market movements cannot be predicted)
- No commissions
- The risk-free rate and volatility of the underlying are known and constant
- Follows a lognormal distribution; that is, returns on the underlying are normally distributed.
The formula, shown in Figure 4, takes the following variables into consideration:
- Current underlying price
- Options strike price
- Time until expiration, expressed as a percent of a year
- Implied volatility
lay games of chance for money; bet.take risky action in the hope of a desired result.
