How are options actually priced?
- Thread starter IIAce
- Start date
On "Triple Witching" day, the leaders of the US, Russia, and Burkina Faso gather around a Ouija board and fill in a massive Excel spread sheet.
"Quadruple Witching" is when they include France.
It's also possible supply and demand sets all prices in a free market, but I'm more of a conspiracy theorist than that.
http://www.888options.com
is The Man. They're trying to surpress all such theories by claiming that market participants set a fair value for options by looking at probability-based pricing models such as Black-Scholes.
Don't bother looking at their free seminars. They'll just fill your head with nonsense.
My friend knows the head of Burkina Faso. He's going to cut me a break on Nov GOOG 300 puts on October 16th.
"Quadruple Witching" is when they include France.
It's also possible supply and demand sets all prices in a free market, but I'm more of a conspiracy theorist than that.
http://www.888options.com
is The Man. They're trying to surpress all such theories by claiming that market participants set a fair value for options by looking at probability-based pricing models such as Black-Scholes.
Don't bother looking at their free seminars. They'll just fill your head with nonsense.
My friend knows the head of Burkina Faso. He's going to cut me a break on Nov GOOG 300 puts on October 16th.
Yep, op pricing is a witch's brew...and there are dragons. So beware!
I think that's correct, but in the sense that traders do make an assumption about the 'value'of an option, thus estimating the current Implied Volatility. If an option's price is out of line it becomes profitable for a trader to take advantage. If it gets 'to expensive' he sells, and reverse. This brings the price back in line.
When the market gets more agitated there will be more hesitation in estimating the IV and selling an option will be slightly slowed so prices will rise.
So, it is supply and demand but on a different level than with stock.
Ursa..
Here is a primer on option pricing http://www.optiontradingtips.com/pricing/index.html
But in the real world computers calculate the bid/ask in a flash. Just go into any broker quote system and ask for The bid/ask on, say October, options on any stock. You will get prices for all the October string instantly. No person could calculate px's this fast
IB will quote FOP prices, as will DTN. The exchanges will also list 15-minute delayed data.
Optionetics has a free (and incredibly useful) IV historical chart for FOPs:
http://platinum.optionetics.com/oafutures.html
Optionetics has a free (and incredibly useful) IV historical chart for FOPs:
http://platinum.optionetics.com/oafutures.html
superbWhat is an FOP price?