Why are there illegal option orders in the orderbook?

earth_imperator said:
Wrong! Surely there is a true price!
Just show me an option pricing model that replicates the said (buggy) price. I'm sure you can't.
And this means there is a clear limit where the price becomes wrong/illegal, and therefore fraudulent.
And exactly that is the issue here. Q.E.D.
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ok, so there's a true price that you would like to pay and every deviation from that price is illegal and fraudulent.

To me that sounds you're not the competition but the perfect customer...so well behaved. Let me know when you want to trade. I'll be more than happy to quote true prices to you.
 
MrMuppet said:
ok, so there's a true price that you would like to pay and every deviation from that price is illegal and fraudulent.

To me that sounds you're not the competition but the perfect customer...so well behaved. Let me know when you want to trade. I'll be more than happy to quote true prices to you.
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Read up about Put-Call parity: https://en.wikipedia.org/wiki/Put–call_parity.. But I'm sure you already know it.
Prices beyond a mathematical limit do violate the put-call parity, so are invalid/illegal.
The lower and upper limits, ie. minPremium and maxPremium, was posted in this thread...

Yeah, posting such important discoveries to help the traders are not seen very positively by certain circles out there, as everybody can conclude from certain reactions... mirror... :)
 
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Look...I believe you're a good person but I have to try really hard right now not to flip my table when reading your bullshit.
So here's one last attempt to get this incredibly stupid mindset out of your head. After that, you're on your own, oke?


1kg of apples costs 5$ on average in the US. This price is determined by various factors but the biggest one is the fact that people are buying apples at these prices.

If you ask 10$ for 1kg of apples in your shop you'll notice that only idiots will buy (perhaps because you labeled them as organic) or you won't sell any of them.

However, asking 10$ for apples is NOT illegal or fraudulent. You can ask 50$ for them if you like. Anybody can see the apples as well as the price and can chose to buy or not.
By the way, in South Africa 1kg of apples is 1.30$ and nobody would ever think about buying for 5$.


The argument you bring to the table is the BSM model and there's your issue.

Imagine a model that says: pear price = sqrt(pi) x apple price. That would mean that 1kg of pears is 8.86$...now you walk into a store and see a 1kg of pears offered for 7$

Is the 7$ price fraudulent or illegal?


The BSM model does NOT determine the price of an option. Put/Call parity do not determine the price of options. These are models that allow you to compare different options so that you can determine what is cheap and what is expensive. They are tools.

If you want to trade at prices that violate all the no arbitrage criteria, you're free to do so.
 
@MrMuppet, I'm not interested in your BS logic of comparing apples to oranges.
You can't cheat maths and facts.

These are the absolute lower and upper limits of option premiums:
maxPremium = fCall ? S : K
minPremium = max(0.0, fCall ? S - K : K - S)

By adding DTE, InterestRate and DividendYield one can even further narrow it down, but the above limits are the total absolute limits, everything beyond them are invalid/illegal/fraudulent quotes. And as was shown, there are many such fraudulent quotes in the orderbook, placed by MMs. One needs to re-calculate every quote...

If you can't decipher these formulas and symbols then let me know and I'll explain it to you.

Otherwise: Case closed.
 
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earth_imperator said:
@MrMuppet, I'm not interested in your BS logic of comparing apples to oranges.
You can't cheat maths and facts.

These are the absolute lower and upper limits of option premiums:
maxPremium = fCall ? S : K
minPremium = max(0.0, fCall ? S - K : K - S)

Adding DTE and IR one can even further narrow it down, but the above limits are the total absolute limits, everything beyond them are invalid/illegal/fraudulent quotes

If you can't decipher these formulas and symbols then let me know and I'll explain it to you.

Otherwise: Case closed.
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during the 2008 crash I bought 3m ATM calendars of C for -5 to -15cts.

Can you explain this with your models? Was the trade illegal?
 
Are you even trading @earth_imperator ?

Because you sound like an arrogant young student when interacting with people who do this for a living.

Try to listen from time to time instead of considering your truth as absolute.
 
cesfx said:
Are you even trading @earth_imperator ?

Because you sound like an arrogant young student when interacting with people who do this for a living.

Try to listen from time to time instead of considering your truth as absolute.
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Yes, of course I'm trading, and I'm not interested in listening to some such AHs... :) b/c then I would become like them... :)
I just don't understand why talk much about such glass-clear facts that even was proved with real data and even explained for the dumbest.
 
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earth_imperator said:
Yes, of course I'm trading, and I'm not interested in listening to some such AHoles... :)
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Their knowledge is worth more than you can imagine.

But if you know it all... Why bother being here?
Is it the kindness in you that wants to help the lost souls?
 
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