You are using an out of date browser. It may not display this or other websites correctly.
You should upgrade or use an alternative browser.
You should upgrade or use an alternative browser.
option arbitrage....examples ?
- Thread starter jjk2
- Start date
Quote from c.chugani:
I know there is no way of determining it until after the fact. However, if your model happens to price IV better than the competition (ie. your volatility forecast is more accurate and nearer to the realised volatility), wouldn't you gain an edge over other participants?
Well, if you can build a better model then sure, go for it.
Quote from c.chugani:
how about finding mispricings / discrepancies in IV?
It makes sense that different valuation methods and tools would result in different perceptions regarding the extrinsic value of certain options.
do a search for dispersion trades. this is not a money maker anymore.
Quote from MTE:
And how do you define IV mispricings/discrepancies?
There's no single correct IV value, so how would you determine that a particular IV number is "wrong"?
It's not a matter of right or wrong implied volatilities, it's a matter of relationships between the implied volatilities of different options. These relationships can become temporarily distorted. If you can find such distortions, you may be able to exploit them by doing a spread. Spreading volatilities is not as good as arbitraging volatilities, but it's the best you can do these days.
my option arb experience involved exploiting price differences between exchanges. not sure if this is still available.
surf
surf
Quote from jjk2:
is there a book on this ? perhaps your own insights? is it very profitable ?
Both Charles Cottle and Sheldon Natenburg's books explain synthetics, and hence, option arbitrage opportunities. The market's efficiency has eroded most of the opportunities in these trades, but understanding these relationships is very beneficial.
Quote from c.chugani:
how about finding mispricings / discrepancies in IV?
It makes sense that different valuation methods and tools would result in different perceptions regarding the extrinsic value of certain options.
i am interested this in myself. not this is very math intensive i am told. maybe thats why hedgies hire quants to do these sort of stuff.