How are options actually priced?

I recall 4re mentioning a nice set-up, not relative to how options are priced but a cute method of trading options based on a simple observation of Bollinger band range. Find a stock that moves, wait till BB range gets pretty tight (congestion period) and buy call/puts. Losses in one position are offset be gains in the other. Simple method.
 
I once woke up in the middle of the night and walk down to the bottom of my garden and saw fairies pricing options while sitting on a toadstool.
 
Quote from romik:

I recall 4re mentioning a nice set-up, not relative to how options are priced but a cute method of trading options based on a simple observation of Bollinger band range. Find a stock that moves, wait till BB range gets pretty tight (congestion period) and buy call/puts. Losses in one position are offset be gains in the other. Simple method.
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That would be buying volatility. But you lose if the low volatility continues longer than you can hold your position.
 
Quote from Traveler:

That would be buying volatility. But you lose if the low volatility continues longer than you can hold your position.
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Correct as there is a risk of losing almost 100% but that would be amateurish behaviour to hold option pairs into expiry if an expected move has not occurred after an estimated hold period has run its course, that's where narrow range prior to 1/4 reports comes in handy.
 
I'm not supposed to say this as I could get into a lot of trouble, but this fairies pricing options business is total B.S. In real life options are priced by the little green men (some are grey and apparently they are the ones who make the final pricing adjustments). Once a month, right around expiration, they come to Earth from all over the universe to an option pricing convention, where over the course of 3 days they price options.

P.S. I would also like to take this opportunity to congratulate myself for reaching 1,000 ET posts.:D
 
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