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

[thecoder]

Edit: to be clear, if a fairput has the same price as a standard put, no one will buy the standard calls as they would get a better payout than the call with long stock and long the put. Similarly, just banning the standard puts on your exchange will do you no good, as people will just replicate the put with the call plus short stock, and arb that synthetic standard put against the fairput.

Yes, FairPUT costs the same like a classic PUT.

But I doubt they can create arbitrage, but I'll check this further. Thx.
But I repeat: only CALL and FairPUT, and the underlying, are allowed in the market, the standard PUT is banned.

 

[thecoder]

@Atikon, as said: this is not intended for such exotic markets with negative prices, so let's forget that crappy argument.
And I wonder what your Chi Square Distribution has todo with option pricing models. Do you see it mentioned in BSM? Nope! So let's forget that as well. What remains of your arguments? Nothing!

If anyone would try to implement your Puts on Equities, he/she/they would be broke within a fragment of a second, since HFT Algos would Arbitrage the S*** out of your Put.

Just explain how they would create arbitrage. I am anxious to hear

 

[Atikon]

@Atikon, as said: this is not intended for such exotic markets with negative prices, so let's forget that crappy argument.
And I wonder what your Chi Square Distribution has todo with option pricing models. Do you see it mentioned in BSM? Nope! So let's forget that as well. What remains of your arguments? Nothing!

Show me the stock with a negative Spot In the meantime write the Admin to change your Acc. name into "Full Blown Dunning-Kruger"

 

[VolSkewTrader]

If the put payout is unfair compared to the call payout, why does long stock plus long put replicate the [same strike] call payout?

I realize I am wasting my time trying to help you understand options. So I'll give you one last piece of advice: Either scrape together enough money to open an account and start selling those overpriced standard puts; or open an unregulated crypto derivatives exchange from your mom's basement featuring standard calls and "fair" puts.

Edit: to be clear, if a fairput has the same price as a standard put, no one will buy the standard calls as they would get a better payout than the call with long stock and long the put. Similarly, just banning the standard puts on your exchange will do you no good, as people will just replicate the put with the call plus short stock, and arb that synthetic standard put against the fairput.

Kevin points out exactly how your "FairPuts" could easily be arbitraged. If you sell a standard call and hedge one-to-one with long stock you synthetically create a short standard BSM put, which you are trying so hard to get rid of. By creating a short standard BSM put (by selling the BSM call against long stock 1 to 1), and then simultaneously buying your "FairPut" one could arbitrage the difference between the two. Since your "FairPuts" start out paying much more than standard BSM puts, the algos would within minutes arb this difference until your "FairPuts" paid out the same as a standard BSM put, which defeats the whole purpose of your invention.

 

[thecoder]

Show me the stock with a negative Spot

Don't you feel stupid with such childish arguments?

 

[thecoder]

Kevin points out exactly how your "FairPuts" could easily be arbitraged. If you sell a standard call and hedge one-to-one with long stock you synthetically create a short standard BSM put, which you are trying so hard to get rid of. By creating a short standard BSM put (by selling the BSM call against long stock 1 to 1), and then simultaneously buying your "FairPut" one could arbitrage the difference between the two. Since your "FairPuts" start out paying much more than BSM puts, the algos would within minutes arb this difference until your "FairPuts" paid out the same as a standard BSM put, which defeats the whole purpose of your invention.

I said I'll check that situation. It takes some time. Thx.
Hmm. if that is indeed true, then it's a hard nut, I admit it... :-(
But I need to check it first myself. Takes some time here.

 

[Atikon]

Instruments with lognormal price distributions such as equities have skewed and asymmetric standard deviations. A one standard deviation move higher will have a higher payout than a one standard deviation move lower when the price distribution is positively skewed in assets such as stocks.

The payout will NOT be equal on a 1 SD move with a lognormal price distribution assumption. The mean of a stock's potential price range is to the right (upside) of the ATM strike. That mean moves higher in price terms as volatility increases. Therefore a 1 standard deviation higher move from the mean will naturally be further away from the current ATM/spot price than a 1 standard deviation move lower. You are trying disprove some basic statistical theory.

Lognormal vs Normal distribution:

Look where the mean is for a lognormal dist vs a normal dist. The 1 standard deviation (variance from the mean) is going to be much further to the right (higher stock price) than it is to the left (lower stock price).

@thecoder

 

[Stamamarti]

BTW — this thread proofs only one thing — that too many of you have too much time on your hands ...

 

[thecoder]

Hey @Atikon, we are over this, so stop re-posting your old sh*t again. Stop spamming this thread.

 

[thecoder]

BTW — this thread proofs only one thing — that too many of you have too much time on your hands ...

You can only mean the others, as I'm working hard to find a solution to a problem