Short-selling DITM options

OptionGuru said:
No I don't - is that some sort of "option greek gobbly goop" ?
:)
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No, z is the "z-value" (calculated from volatility, spot, and strike) from probability calculations, p(z) is the probability belonging to that z-value,
and S2K is simply the %distance of the underlying spot (S) to the strike (K).
 
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@marsman , ( sorry, didn't mean to sound so snarky in my previous) also I think I get where you are going with your "formula" but, is there a directional component to it ? or just distance in either direction from an ATM strike ?
 
I think there would probably be more of a market for and less early exercise of very deep in the money options if the margin rule for a simple long option position were changed from...

100% of the value of the option (at least that is my understanding of how it is in the United States)
...to...
minimum(100% of value of the option, margin requirement of the underlying)

The fact that a deep in the money option can have margin requirements exceeding the underlying creates an artificial incentive for early exercise or not to buy the option at all, and I don't see what the extra margin requirement protects anyone from in this case.

Corrections and counterarguments are welcome.
 
sss12 said:
@marsman , ( sorry, didn't mean to sound so snarky in my previous) also I think I get where you are going with your "formula" but, is there a directional component to it ? or just distance in either direction from an ATM strike ?
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No dir comp, yes in either dir... :)
And of course use fabs(x)...
In my case it's usually about finding high prob for _not_ happening a certain event...

And from my experience: calculating the ITM and OTM values for _short_ positions is the most complicated (sometimes one needs them indeed)...
 
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toonerdy said:
I think there would probably be more of a market for and less early exercise of very deep in the money options if the margin rule for a simple long option position were changed from...

100% of the value of the option (at least that is my understanding of how it is in the United States)
...to...
minimum(100% of value of the option, margin requirement of the underlying)

The fact that a deep in the money option can have margin requirements exceeding the underlying creates an artificial incentive for early exercise or not to buy the option at all, and I don't see what the extra margin requirement protects anyone from in this case.

Corrections and counterarguments are welcome.
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You could be right, indeed. The ITM part should be substracted from the 100% as it already is a collateral.
 
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@marsman...be careful if you are just selling premium (even in spreads) based on probability and fabs without encorporating an opinion/call on the direction of the underlying and/or direction of vol. These risks have been discussed extensively in this forum.
 
sss12 said:
@marsman...be careful if you are just selling premium (even in spreads) based on probability and fabs without encorporating an opinion/call on the direction of the underlying and/or direction of vol. These risks have been discussed extensively in this forum.
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The goal is to have the option of the holder expire worthless. Ie. keeping the position till it expires, not trying to early-close it. Then in fact volatility-change doesn't matter at all .
 
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