The FairPut Initiative

[thecoder]

Regarding arbitrage see also this:
https://www.elitetrader.com/et/thre...e-chameleon-option.349956/page-8#post-5202504
Ie.

Since FairPut costs the same like a Put, then it has at any time the same value much like a Put
as long as the option parameters spot, volatility, risk-free rate and dividend rate stay constant.
Any change in these params means justly earned gain or loss, and not any arbitrage.

So, arbitrage with FairPut is not possible! Q.E.D.

 

[thecoder]

The whole idea of FairPUT is because of the fact that the BSM model does not pay out the same
for PUT as it does for CALL for options that cost the same and have the same probability of getting ITM.
That's the reason to fix the PUT by replacing it with FairPUT.

FairPUT is just an optional 3rd option type besides CALL and PUT.
Long option traders would prefer FairPUT over PUT because FairPUT has a higher payoff than PUT, though both cost the same.
But still all 3 can co-exist in the market.

FairPUT works with BSM as well with the new option pricing model FPM.
As said, it's optional in both.

One can also say this: PUT buyers have been f*cked by the PUT writers/sellers since 1973...

 

[thecoder]

Started a separate journal for the new option pricing model FPM:
FPM, the successor to the BSM option pricing model

 

[thecoder]

Long option traders would prefer FairPUT over PUT because FairPUT has a higher payoff than PUT, though both cost the same.

This of course has also implications for the FairPUT writer (seller). As FairPUT has a higher payoff than PUT, this means at the same time of course also a higher risk for the FairPUT writer (seller) over the PUT. That's obvious of course.

Therefore, it's best to have all 3 types (CALL, PUT, FairPUT) available in the market to chose from.
And: don't believe the arbitrage liars! They have no clue!

And: FairPUT gives the same payoff like a CALL. Ie. FairPUT is the mirror image of the CALL, so that when both have the same probability for UP and DOWN then they get the same payoff. That's the mathematical correct way, and it works even in such lognormal markets like the stock options market.

 

[destriero]

@Baron, if you are reading this, do the site a favor and ban this idiot.

His premise is that BSM is broken bc there is vol-skew. Skew is persistent so the dude is off his rocker. He doesn't understand synthetics.

Ppl, I implore you... don't respond to this dude's drivel and he'll go away. Yeah, that's right, I am calling for a boycott of da coder.

 

[thecoder]

destriero wrote

@Baron, if you are reading this, do the site a favor and ban this idiot.

His premise is that BSM is broken bc there is vol-skew. Skew is persistent so the dude is off his rocker. He doesn't understand synthetics.

You are as usual talking just BS!
The reason why BSM is wrong is not that it has volatility smile/skew, but because it calculates wrong prices for both CALL and PUT.

Here's one example that every stochastic mathematician IMO should be able to easily confirm, as it's a simple probability question:
https://www.elitetrader.com/et/thre...bsm-option-pricing-model.350048/#post-5202672

I answered this question (volatiliy smile/skew) myself already on Aug 20, 2020. Proof:
https://www.elitetrader.com/et/thre...w-to-profit-of-it.348911/page-11#post-5183150
Ie.

thecoder wrote
Q: Does 'volatility smile/skew' exist also with FairPut?
A: Yes, as it's caused by greed with big spreads in bid/ask for distant strikes

#110 Aug 20, 2020