OTM puts with respect to black swan

[atticus]

Quote from xflat2186:

There is no guess work at all anymore, those days ended years ago. The FACT is that if those options are priced wrong then somone somewhere in the world would be making a bundle off them.

This is a moot point being that you cant offer a single answer to the questions posed or show an example.

There isn't any method by which to arb the smile, and to isolate via replication will simply result in correlation risk.

I hear Vic N made 10s of millions from skew.

 

[Don87109]

Quote from xflat2186:

There is no guess work at all anymore, those days ended years ago. The FACT is that if those options are priced wrong then somone somewhere in the world would be making a bundle off them.

This is a moot point being that you cant offer a single answer to the questions posed or show an example.

Actually Rosy may have a point.

That is, in order to price options correctly you need to know future volatility. Given that is impossible, by definition options pricing has to be wrong.

Although I guess you can say that the value of most anything is just the collective opinion of the masses, ala supply and demand. From that viewpoint options pricing has to be correct.

Hope this clarifies things.

Don

 

[atticus]

Quote from Don87109:

Actually Rosy may have a point.

That is, in order to price options correctly you need to know future volatility. Given that is impossible, by definition options pricing has to be wrong.

Although I guess you can say that the value of most anything is just the collective opinion of the masses, ala supply and demand. From that viewpoint options pricing has to be correct.

Hope this clarifies things.

Don

Which dissects to an argument re: expectancy; but I don't really believe that's where the argument was headed. Is this really a question of bid/ask vol and EMH?

 

[Kevin Schmit]

Quote from rallymode:

Perhaps the world is filled with efficient market believers who keep the prices at these incorrect levels which they evidently consider fair prices.

Believers not in EMH, but rather in misspecified SV Jump-
Diffusion models.

I agree with Rosy, tradable mispricings show up more
often in far OTM than in ATM or close OTM options.

 

[xflat2186]

I dont see where Rosey says he/she is talking about individual tradeable incorrect pricing. He/She seems to think they're all wrong all the time and markets are so inefficient they just sit there priced wrong all the time.