Legging in

[metooxx]

Quote from BobbyMurcerFan:

But how can even the realtively sophisticated investor notcie that the option is mispriced. It seems like you need some pretty exceptional experience and proprietary software to be able to beat the MM's at their own game.

A friend of mine who used trade options for J.P. Morgan said that qute a few times an option's price looked out of whack, there was a reason for it and the MM was proven right.

If I'm wrong and there is a way to at least to being to approach this level of understanding w/o the ability to improve on Black Scholes model and prgram in Java/C++, I'm all ears.

It takes the right tools,

however if MM were so sharp; we would be broke ...

 

[white17]

Quote from BobbyMurcerFan:

But how can even the realtively sophisticated investor notice that an option is mispriced.

Fan: at the risk of offending you, which isn't my intention, even an unsophisticated trader should be able to look at a put & call of the same strike and time and tell if there is a discrepancy. e.g

The Bid price of the call minus the ask price of the put SHOULD equal the stock price minus the strike. If it doesn't, then the real problem comes up. Which option is out of line and why. If the call is overpriced it may suggest a conversion is in order or vice versa for the reverse.

 

[metooxx]

Look at all the exchanges and pick the side that is out of line; poor mans valuation tool ...

 

[BobbyMurcerFan]

Quote from white17:



Fan: at the risk of offending you, which isn't my intention, even an unsophisticated trader should be able to look at a put & call of the same strike and time and tell if there is a discrepancy. e.g

The Bid price of the call minus the ask price of the put SHOULD equal the stock price minus the strike. If it doesn't, then the real problem comes up. Which option is out of line and why. If the call is overpriced it may suggest a conversion is in order or vice versa for the reverse.

Not offended at all. It's my understanding that conversions and reversals are very short lived and don't really present any kind of opportunity for a home based trader. Maybe I'm wrong?

 

[BobbyMurcerFan]

Quote from metooxx:

Look at all the exchanges and pick the side that is out of line; poor mans valuation tool ...

For just one time only, I'd very much like to post the prices and IV's for an underlying's most liquid strikes. And propose a simple bull call spread, or even a condor to get more strikes involved. And then see how the folks here would leg into the trade and why. Because to be honest, I'm not sure what I think might be an out of line price that I should pounce on is accurate.

I'm thinking of using MSFT as an example because it has a tight spacing of strikes around ATM. Hope you guys might be willing to go for this.

 

[Banjo]

It's about trading, go for it

 

[white17]

Quote from BobbyMurcerFan:

Not offended at all. It's my understanding that conversions and reversals are very short lived and don't really present any kind of opportunity for a home based trader. Maybe I'm wrong?

No you're absolutely right. I just picked that as an example.