LPoulin133 Wrote: ------------------------------------------------------- > JoeyDVivre Wrote: > -------------------------------------------------- > ----- > > No - realized vol and implied vol don’t have to > be > > connected at all… > > > I follow that…but if the realized vol. is less > than indicated by the put IV wouldn’t that > misprice the equivalent call also? I was under > the impression P-C parity implied equal IV between > puts and calls. > > Thanks. realized vol only occurs after the fact, so it has nothing to do with current pricing.
Sure - all options are almost always overpriced in some sense. Of course, the underlying variance may be infinite which means they are all underpriced.
LPoulin133 Wrote: ------------------------------------------------------- > JoeyDVivre Wrote: > -------------------------------------------------- > ----- > > No - realized vol and implied vol don’t have to > be > > connected at all… > > > I follow that…but if the realized vol. is less > than indicated by the put IV wouldn’t that > misprice the equivalent call also? I was under > the impression P-C parity implied equal IV between > puts and calls. > P-C parity is true whether you use market prices or BS model prices. Often this leads to two different values of volatility, and that’s why they introduced the concept of “volatility smiles” and “volatility surfaces” to include this variation in the option pricing model.
Ok, i think my confusion comes from the fact that i inferred from joey’s comment that ‘only’ the put was mispriced. Looking at an example it would seem that a put and a call of equivalent strikes could both be ‘mispriced.’ Am i correct in this thinking?
Yep…
IronMan Wrote: ------------------------------------------------------- > FYI guys, covered my GOOG put. Also sold 3 more > of the GS 85 puts. Received more sales profits > than I had to pay to cover the GOOG so will make > even more $$ than I thought as long as GS doesn’t > implode. > > Margin calls in GOOG were scaring me. GS will > loosen it up just a tad. I have these puts up about 35% today. So IronMan down another $750+. Margin call coming tomorrow…
ouch. Is he putting out fire by fanning it?
puts may look overpriced from the traditional BS pricing b/c assumption from lognormal distribution and constant volatility. Fat tails, black swans, and the one eyed snake can always bite.
LPoulin133 Wrote: ------------------------------------------------------- > Ok, i think my confusion comes from the fact that > i inferred from joey’s comment that ‘only’ the put > was mispriced. Looking at an example it would > seem that a put and a call of equivalent strikes > could both be ‘mispriced.’ Am i correct in this > thinking? When you calculate volatility using puts it will generally come out higher than if you do so using calls. This phenomenon has been explained by two reasons: 1 - Crashophobia: Fear of repetition of 1987 crash 2 - Dbt/Eq increases as stock prices goes down, which increases volatility of earnings and equity.
JoeyDVivre Wrote: ------------------------------------------------------- > Almost all puts are overpriced. Check out a plot > of VIX vs realized vol over the last forever > years. The problem is that you can get stomped > selling them as they become more overpriced. I happened to come across this again today - Jack Schwager interviewing Jeff Yass: - - - - - - Schwager: Are options prices always skewed in the same direction? In other words, are out of the money puts always priced higher than equivalently out of the money calls? Yass: Most of the time, puts will be high and calls will be low. Schwager: Is there a logical reason for that directional bias? Yass: There are actually two logical reasons. One I can tell you; the other I can’t. One basic factor is that there is much greater probability of financial panic on the downside than on the upside. For example, once in a great while, you may get a day with the Dow down 500 points, but it’s far less likely that the Dow will go up 500 points. Given the nature of markets, the chance of a crash is always greater than the chance of an overnight runaway euphoria. - - - - - -
mo34 Wrote: ------------------------------------------------------- > LPoulin133 Wrote: > -------------------------------------------------- > ----- > > Ok, i think my confusion comes from the fact > that > > i inferred from joey’s comment that ‘only’ the > put > > was mispriced. Looking at an example it would > > seem that a put and a call of equivalent > strikes > > could both be ‘mispriced.’ Am i correct in > this > > thinking? > > > When you calculate volatility using puts it will > generally come out higher than if you do so using > calls. This phenomenon has been explained by two > reasons: > > 1 - Crashophobia: Fear of repetition of 1987 > crash > 2 - Dbt/Eq increases as stock prices goes down, > which increases volatility of earnings and equity. The key is specifying that the puts and calls you’re comparing are OTM, and not equivalent, as i had inferred from joey’s comment. I’d think D/E is a pretty indirect contributor to IV.
GS below 85
gameday0 Wrote: ------------------------------------------------------- > GS below 85 Speaking of volatility… Correction: GS above 93
bump
As Gekko said … its a zerosum game dood…
Where is Robert Downey Jr. aka Ironman - did you bail on this trade?
I just want to be part of this fabulous thread.
in my PA i bot LM yesterday 13.1 sold today 18.31… can you even calculate the annulized return on that ? took 1/6 of the gain and bot Nov 22.5 call for $0.60 still own my AA 12.5 Nov call. Bot the Nov 12.5-15 call spread @ .19 then covered my 15 call at .08 avg price. leaves me long 12.5 call now trading 0.50+… i need AA to trade at 21.3 before Nov 21st to be up on the year… don’t think it’ll happen but dreaming about it is always fun and expensive. i 'll take AA trading 14+ and be happy
Why do you like LM? I want to like it but I don’t.
virginCFAhooker Wrote: ------------------------------------------------------- > Why do you like LM? I want to like it but I > don’t. i do but i don’t. I bought for a trade, day before earnings, if sold off today i would be selling 10 minutes into the open. took principal off and letting the coupon ride, i think it’s overdone but not willing to risk the enchilada on it. i want to love it too, but think it’s a double down bet on the US economy and wealth indicator… not willing to take a big stake in it. one side is telling me they still have some $800B+ in assets, and the fed is bailing them out on money market funds, so no more writedowns on keeping money markets at par. if you have 5+ year horizon, i think you are good at these levels but still think if markets tank after this bear market rally we could see $6-8, that’s when i will get in for the “long term”