Thanks Xflat,
Pictures are beautiful, and I understand that you reached your goal by hiring your wife. Bravo. That's the way.
That's real options trading lol.
Maw
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Negative Theta Options over Weekend
- Thread starter TraderGreg
- Start date
Thanks Xflat,
Pictures are beautiful, and I understand that you reached your goal by hiring your wife. Bravo. That's the way.
That's real options trading lol.
Maw
Quote from MasterAtWork:
For the cost of carry that rates 3 times the risk free rate, take a look of some commodities historic prices.
If I tell you this is incorrect, you won't believe me. So I'll refer you to the book you yourself called "the bible of options," by Espen Haug.
You have his book, so you must have the disk that comes with it. Open up the first spreadsheet, go to the first pricing model, and read the instructions. It tells you that for futures, the cost of carry is 0. For non-dividend-paying stock, cost of carry = risk-free-rate. For dividend-paying stock, cost of carry = risk-free-rate - dividend yield.
So if you find a stock that has a dividend yield of negative 6%, then I guess you could have a risk-free rate of 3% and a cost of carry of 9%. Otherwise I don't see how.
Quote from dmo:
If I tell you this is incorrect, you won't believe me. So I'll refer you to the book you yourself called "the bible of options," by Espen Haug.
You have his book, so you must have the disk that comes with it. Open up the first spreadsheet, go to the first pricing model, and read the instructions. It tells you that for futures, the cost of carry is 0. For non-dividend-paying stock, cost of carry = risk-free-rate. For dividend-paying stock, cost of carry = risk-free-rate - dividend yield.
So if you find a stock that has a dividend yield of negative 6%, then I guess you could have a risk-free rate of 3% and a cost of carry of 9%. Otherwise I don't see how.
Hi dmo,
Course I got the book and the cd.
The point is the understanding of the non arbitrage argument.
As you tell me you got the book, I will keep it as to support the way I want you to understand this trick.
Turn the first pages of the book and it will show the example with commodities.
To be more accurate, as I said it's like negative interest rates. It doesn't make sens but it happened. So put in your first spreadsheet a negative interest rate and you will see something interesting.
That's all. It doesn't mean that everywhere on earth you've got delta that are more than one, it means that it could be (and use to).
Feel free to ask me if I'm not clear enough. It's important because if you don't understand this (may i be not a good teacher sorry), you can't logically understand negative interest rates and zero interest rate. Before talking about real rates (by inflation corrected), you can't understand why it could really be more clever to invest in option than underlying.
Please feel free to ask any questions, I will try my best to answer "clearly".
Maw
Quote from dmo:
If I tell you this is incorrect, you won't believe me.
I hope I could as an opened mind has to. So feel free to tell me.
So I'll refer you to the book you yourself called "the bible of options," by Espen Haug.
As a matter of fact, it's right and I swear to god I make no money to tell you that.
Cheers
Maw
Quote from MasterAtWork:
Hi dmo,
Course I got the book and the cd.
The point is the understanding of the non arbitrage argument.
As you tell me you got the book, I will keep it as to support the way I want you to understand this trick.
Turn the first pages of the book and it will show the example with commodities.
To be more accurate, as I said it's like negative interest rates. It doesn't make sens but it happened. So put in your first spreadsheet a negative interest rate and you will see something interesting.
That's all. It doesn't mean that everywhere on earth you've got delta that are more than one, it means that it could be (and use to).
Feel free to ask me if I'm not clear enough. It's important because if you don't understand this (may i be not a good teacher sorry), you can't logically understand negative interest rates and zero interest rate. Before talking about real rates (by inflation corrected), you can't understand why it could really be more clever to invest in option than underlying.
Please feel free to ask any questions, I will try my best to answer "clearly".
Maw
Ha ha - well you're tenacious MAW - I'll give you that! And here I thought I had you pinned by quoting your own "bible" to you. But I guess like every bible, everyone has their own interpretation.
Honestly MAW, I have no idea what you're talking about. I'm not even sure I know what the hell I'M talking about any more. But I promise to make an honest effort to understand your point. Hey, with inflation running 4 or 5 times the US dollar risk-free rate, knowing how to milk an edge out of negative interest rates just might come in handy.
Quote from dmo:
Ha ha - well you're tenacious MAW - I'll give you that! And here I thought I had you pinned by quoting your own "bible" to you. But I guess like every bible, everyone has their own interpretation.
Honestly MAW, I have no idea what you're talking about. I'm not even sure I know what the hell I'M talking about any more. But I promise to make an honest effort to understand your point. Hey, with inflation running 4 or 5 times the US dollar risk-free rate, knowing how to milk an edge out of negative interest rates just might come in handy.
Hi Dmo,
Thanks for the "honest effort to understand THE point (it's not mine, forgot the copyrights lol).
I don't want to be misunderstood. It's not an arbitrage opportunity that you may find right now. Keep in mind, it's a possibility, in a certain context. I don't want to join the point to a high inflation context. Sometimes, situations are illogic but occur.
Remember, all the point is "sometimes, delta of plain vanilla call option will be more than 1, that's all.
Cheers
Maw
Thanks for that reference maw. My own reading of it is it's just Haug having fun being bombastic and provocative, which he clearly loves doing. Very much along the lines of that silly article he co-authored with Taleb in which he claims that BS and similar pricing models are irrelevant because they are unused and unnecessary etc. etc. (Then he goes on in his book to say it is the most used probability model/tool in the world.)
To me, cost of carry is not an arcane mathematical construct, it is a real number that describes my cost of funds. If I borrowed money to buy something, it is the percent I paid for the funds. If I buy an option on that thing INSTEAD OF buying the thing, COC is then the interest I earned on the money that I did not have to spend buying the thing. I still haven't heard a nuts and bolts explanation as to why my cost of funds or earning power on funds would be more than a few percent - or more than the risk-free rate. I continue to be open if someone can give me a credible scenario. Hey, I love arcane knowledge. But I haven't heard such a scenario yet.
Maw, maybe you and I differ in that you seem to enjoy dealing with the math as an intellectual exercise on its own terms, not necessarily connected to the reality. Nothing wrong with that, but personally the math only interests me inasmuch as it describes real-life and can help me put $$ in my account.
Quote from dmo:
Thanks for that reference maw. My own reading of it is it's just Haug having fun being bombastic and provocative, which he clearly loves doing. Very much along the lines of that silly article he co-authored with Taleb in which he claims that BS and similar pricing models are irrelevant because they are unused and unnecessary etc. etc. (Then he goes on in his book to say it is the most used probability model/tool in the world.)
To me, cost of carry is not an arcane mathematical construct, it is a real number that describes my cost of funds. If I borrowed money to buy something, it is the percent I paid for the funds. If I buy an option on that thing INSTEAD OF buying the thing, COC is then the interest I earned on the money that I did not have to spend buying the thing. I still haven't heard a nuts and bolts explanation as to why my cost of funds or earning power on funds would be more than a few percent - or more than the risk-free rate. I continue to be open if someone can give me a credible scenario. Hey, I love arcane knowledge. But I haven't heard such a scenario yet.
Maw, maybe you and I differ in that you seem to enjoy dealing with the math as an intellectual exercise on its own terms, not necessarily connected to the reality. Nothing wrong with that, but personally the math only interests me inasmuch as it describes real-life and can help me put $$ in my account.
What made you think that delta is ALWAYS less than 1.?
There many misconceptions about delta and other option-related questions. For instance I once exchanged with a person (not any person, but someone who teaches options to others) who told me that delta of an ATM is always exactly equal to ....