New invention for the derivatives market - How to profit of it?

[VolSkewTrader]

I have to laugh! All prices, incl. energy prices, are to be treated as lognormally distributed prices.
Therefore, you are simply using the wrong option pricing model!
You have to use the FairPut option pricing model over both Bachelier and also over BSM, to have a mathematical correct model!

Well it makes plenty of money, and my option prices are always spot on with the MMs. If I used the FairPut model I would just be long every put and short every call....and deep in the red. The FairPut model would make me lift every put offer and sell every call bid on the screen. You would bankrupt a nice sized prop firm with the FairPut model.

You should try your FairPut model with your own money or your parents money and find out in a real trading environment if it works. The proof is in the pudding.

 

[thecoder]

You're an idiot.

Look in the mirror, dude.
Your contribution to any discussion is ZERO.
It seems you can just only insult others, but can nothing more. Can you?

 

[destriero]

Well it makes plenty of money, and my option prices are always spot on with the MMs. If I used the FairPut model I would just be long every put and short every call....and deep in the red. The FairPut model would make me lift every put offer and sell every call bid on the screen. You would bankrupt a nice sized prop firm with the FairPut model.

You should try your FairPut model with your own money or your parents money and find out in a real trading environment if it works. The proof is in the pudding.

^this^

 

[thecoder]

Well it makes plenty of money, and my option prices are always spot on with the MMs. If I used the FairPut model I would just be long every put and short every call....and deep in the red. The FairPut model would make me lift every put offer and sell every call bid on the screen. You would bankrupt a nice sized prop firm with the FairPut model.

Blah blah blah. Whoever believes...
What company are you with?

You should try your FairPut model with your own money or your parents money and find out in a real trading environment if it works. The proof is in the pudding.

It's already on the way. As said, in a new virtual stock exchange it will be used in practice first.

 

[xandman]

It's already on the way. As said, in a new virtual stock exchange it will be used in practice first.

You are building a racing league to race the F1 you built in your garage.

Just sell all the OTM puts you can and hedge the deltas. Eventually, your Fairput model gets vindicated by superior returns.

 

[thecoder]

@xandman, we had this discussion already.
The conclusion was: FairPUT OR classic PUT in a market, but not both together as then arbitrage would be possible.
FYI: in this new market only CALL and FairPUT will be possible.

 

[xandman]

@xandman, we had this discussion already.
The conclusion was: FairPUT OR classic PUT in a market, but not both together as then arbitrage would be possible.
FYI: in this new market only CALL and FairPUT will be possible.

So, why would the FairPUT remain priced to the model when there is a same reality for the underlying? Wouldn't you find a Volatility Smirk in the options as traders price it to the existing reality? And, end up having the same price between FairPUT and conventional Puts?

The market sets these prices, not BSM.

 

[xandman]

I am patenting my product, too.

I will call it FairestPUT ,where option pricing across the option chain will have the same volatilities as the ATM. I will just use BSM.

 

[Overnight]

...
The oil barons should just have adjusted the earnings yield % parameter (r) accordingly (ie. making it negative), then they would have avoided negative prices, IMHO...

So you are saying oil future prices went negative, for the first time in history, because of the BSM model of options? And that it had nothing to do with the CME allowing prices to go negative by removing the down breakers?

Fascinating, cap'n.

 

[thecoder]

The market sets these prices, not BSM.

Ah, come on, man, the market orients itself by using the BSM model. The only parameters the market participants can't agree on are the future price as well the future volatility, ie. the IV. Other than that they all use practically the same pricing model, ie. the BSM and the like.

So, why would the FairPUT remain priced to the model when there is a same reality for the underlying? Wouldn't you find a Volatility Smirk in the options as traders price it to the existing reality? And, end up having the same price between FairPUT and conventional Puts?

Ah, come on, I think this is not a mathematical argument, but more a philosophical argument, IMO.
Sorry, can't argue on that level. I'm a rationale perfectionist math guy, not one of such a wishi-washi "scientists"