Tagged Questions

-4
votes
0answers
22 views

Collar Option - question about payoffs [closed]

Perhaps the question on Black Scholes of Collar options covers this question. But I ask the folllowing three anyway. Let define a Collar Option, with maturity T and parameters $L_2 \gt L_1 \gt 0$, ...
2
votes
1answer
90 views

Hedging differences between equity and index options?

Suppose we hedge an index option using futures on that index. How would the hedging strategy be different if the underlying could be traded directly (from a risk point of view)?
4
votes
1answer
263 views

Call option arbitrage opportunity

I am having trouble wrapping my head around some text provided to us by our lecturer (unfortunately he is currently unavailable). If we let $c$ be the price of a European call option, $S_0$ the ...
2
votes
1answer
145 views

Greeks and Option Premium

If a linear sum of options is constructed such that the premium payout is zero, then does it mean that resultant greeks of the cumulated options positions will be nearly zero. For simplicity, lets ...
0
votes
2answers
196 views

What is the Benefit of holding a short option?

i am new to corporate finance and ask myself why a investor is interested in being short on a Option? The only he can win is a premium but he can loose much more. I understand with being a short I can ...
7
votes
2answers
666 views

How to calculate the most realistic historical option prices with additional publicly available parameters

This is a follow up question of this one. My aim is to create the most realistic historical option prices possible with publicly available data. I want to do this for backtesting purposes. The ...
11
votes
2answers
423 views

What benchmark/index to use for backtesting a portfolio of stock options?

What benchmark should I use for backtesting a model for when I should buy an option of a particular stock? For equities, one could say their portfolio outperformed the S&P 500. I would like to ...
-7
votes
3answers
516 views

True or False? An option's price will always be greater than or equal to its intrinsic value

Since if the option's price is lower than its intrinsic value (eg. strike price - current stock price for puts), then an arbitrage opportunity arises from buying the option at bargain and then ...
3
votes
0answers
81 views

Analysis of Unbalanced Covered Calls

Hello I am doing an analysis on covered calls with and extra amount of naked calls. Ignore the symbol and current macroeconomic events. I couldn't find any reference to this strategy (unbalanced is ...
0
votes
0answers
95 views

Make assumption about future stock price: is the option with best return fairly clear? [closed]

If a security has price X now, and one makes the assumption it will have a greater price Y later, is the option (or option spread) that will provide the best return fairly clear, including the ...
7
votes
2answers
1k views

Are there comprehensive analyses of theta decay in weekly options?

Are there comprehensive analyses of how much theta a weekly options loses in a day, per day? I know what the shape of theta decay looks like, in theory, where the decay towards zero happens more ...
2
votes
1answer
174 views

In a covered call strategy, should I hold the call or sell/roll if the delta becomes too small?

I am tweaking a covered call algorithm. The short leg consists of out of the money call options. The goal is to collect the tim premium, but an equally favorable circumstance is when the call ...
11
votes
2answers
421 views

Can you replicate an option on an arbitrary basket of stocks?

Since a market index is nothing more than a basket of stocks, you can create your own index by putting together stocks of your choice. The only difference is that you can trade options on major ...
15
votes
5answers
2k views

Skew arbitrage: How can you realize the skewness of the underlying?

It's not clear to me how to realize skewness. In other words, how do you implement skew arbitrage? There seems to be no well-known recipe like in volatility arbitrage. Volatility arbitrage (or ...
-4
votes
1answer
215 views

What is the net premium of a bull spread option? [closed]

Suppose we have the following information for the index $S$: current price = $ \$1000$ risk free rate $4 \%$ convertible semiannualy What is the net premium to create a $ \$ 1000- \$ 1050$ bull ...
11
votes
3answers
2k views

Papers about backtesting option trading strategies

I am looking for all kinds of research concerning option trading strategies. With that I mean papers that publish results on different option trading strategies properly backtested with real-world ...