The FairPut Initiative

[guru]

What if everyone in the world will decide and agree that every/all options in the world must always cost $5.
This model is wrong and mathematically incorrect, but you won’t be able to make any money. You’ll never be able to buy options for less than $5 or sell them for more than $5. Then what?

So the “correct” pricing model doesn’t matter. What matters are the market prices that you have to pay. The market decides option prices, not one model or another, and not you.

 

[newwurldmn]

What if everyone in the world will decide and agree that every/all options in the world must always cost $5.
This model is wrong and mathematically incorrect, but you won’t be able to make any money. You’ll never be able to buy options for less than $5 or sell them for more than $5. Then what?

So the “correct” pricing model doesn’t matter. What matters are the market prices that you have to pay. The market decides option prices, not one model or another, and not you.

you could become richer than Jeff bezos in about a month if world existed. That’s the point of black scholes.

again I cite Hull chapters 1-3.

 

[newwurldmn]

lol he blocked me after his hurtful and rude comments. He is literally too dumb to debate.

You'll have to unblock to hit report, numbnuts. lulz.

typical snowflake.

he’s going make mad moneys with his revelation and you won’t ever get to see it.

 

[newwurldmn]

I hereby publicly admit: I don't have the Hull book!... But I'm sure I don't need it since maths is maths and logic is logic.

Update:
I think I found the said 3 chapters very officially here at wiley, the publisher:
https://onlinelibrary.wiley.com/doi/full/10.1111/j.1540-6261.1987.tb02568.x

So, @newwurldmn, just show where therein the answer is supposed to be

I would say, everybody in the academics and the industry is so to say "self delusioned" or "self deceiving" or so..
(I'm not a native English speaker, so maybe I made the wrong choice of words here, but it should be clear what I mean).

Hull is part of the criminal conspiracy. It’s unlikely you would want to read it. It’s also possible he’s a libtard as he’s a PhD in finance (you know those self-deceiving eggheads).

 

[guru]

you could become richer than Jeff bezos in about a month if world existed. That’s the point of black scholes.

again I cite Hull chapters 1-3.

Yes, and that was my point too. The market decides about option pricing, so if the market uses B&S or similar models then that’s what the prices will be. There is no point in fighting market prices and using some other models that try to argue that prices should be different than what they are.

 

[destriero]

NBBO midpoint -> BSM -> vol-figure. If you need more then you should not be trading vol. More to the point... you obv never have (traded).

Bespoke stuff (interpolation of penny-strikes and sticky-models) is great, but it's all built on (mud) BSM.

 

[newwurldmn]

Yes, and that was my point too. The market decides about option pricing, so if the market uses B&S or similar models then that’s what the prices will be. There is no point in fighting market prices and using some other models that try to argue that prices should be different than what they are.

no. You said that you couldn’t make money if every option was priced at 5 dollars. I said you could make more than the entire net worth of Jeff Bezos in 1 month.

our points are nothing the same.

 

[thecoder]

At expiry the call will be worth 28.4025. What's that worth today? The discount factor is 1.284025, so the call is worth 28.4025/1.284025 = 22.1199.

@elt894, can you please take a look at this? :

Here's a similar calculation, now for PUT; q is dividend:

Why does BSM not apply discounting for these params for the PUT side? :
BSM(S=25, K=100, s=0.00001, t=1, r=0, q=0.25) :
CALL=0 PUT=80.52998
(see also attached image)

According to my calcs the spot at expiration will be 19.47002.
Then why simply PUT = K - E(S) = 100 - 19.47002 = 80.52998, and why this premium not similarly discounted like in the prev CALL case?
Do you have an answer for this?

Thx

 

[thecoder]

Yes, and that was my point too. The market decides about option pricing, so if the market uses B&S or similar models then that’s what the prices will be. There is no point in fighting market prices and using some other models that try to argue that prices should be different than what they are.

@guru, this is nonsense!
B/c with such mathematical models we are simulating an ideal market, ie. one where math rules.

 

[guru]

@guru, this is nonsense!
B/c with such mathematical models we are simulating an ideal market, ie. one where math rules.

Math needs to simulate market pricing, not the other way around.
Even if you arbitrage against a future price of an option, you will not survive margin calls before you profit. Tomorrow an option may cost 15x more than today due to volatility, and your broker will close your account before you can argue that your math is better.