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1answer
73 views

Time Value of Option

I am working on time value of option, and especially with dividend, and I have the following questions. First if the consider the Black Scholes models with no dividends and free interest rate $r = 0$ ...
0
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2answers
162 views

How to automatically get all options data for a particular stock into microsoft excel?

I'm looking for a way to get the entire options chain (All options expiries) for a particular stock in excel without manually copy pasting anything. It does not have to be real time and I will only be ...
0
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0answers
21 views

What does (a,b,c curve coefficients) mean for an Implied Volatility Parameterized Surface data? [closed]

I have a dataset which provides a, b, c curve coefficients for an Implied Volatility Parameterized Surface data for a ticker. What do they mean?
5
votes
1answer
4k 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
3answers
79 views

What does it mean for an option strategy to be leveraged

Probably a newbie question, but what do traders mean when they say that an option strategy is leveraged ? And when can we say that it is the case ?
0
votes
1answer
76 views

Portfolio with a certain pay-off curve

I would like to find a relevant optimization option's portfolio models which can describe a certain pay-off curve (objective function) under same assumptions. For example, assumptions on how to limit ...
3
votes
1answer
74 views

Implementation of an option tail-hedging strategy

This question directly refers to the paper "Capital Asset Pricing Mistakes: The Consistent Opportunities in Tail Hedged Equities", http://www.universa.net/Universa_SpitznagelResearch_201501.pdf. Very ...
2
votes
0answers
34 views

How to apply Kelly criterion to a portfolio made by a stock plus a option?

First of all, assuming a Gaussian, Markowitz, well behaved world. Extensions for non-well behaved world will be welcomed. I know that by a portfolio made by only by one stock (and a risk free bond) I ...
2
votes
2answers
404 views

Calculating Greeks in Covered Calls?

Just want to confirm whether Delta, Gamma, Theta, Vega will be calculated in the following way? Since we own 100 shares of stock while selling a call we need to subtract greek value from one? right? ...
1
vote
1answer
156 views

Delta Hedging for 2 Factor Models

If the value of an option at Maturity is what is the off-setting position you take for X and Y, if you are i)Long Call of the option ii)Short Call of the option iii)Long Put of the option iv)Short ...
1
vote
1answer
113 views

Relations between Call and Put

I am trying to solve a question in finance but I am pretty much stuck and would need your help :) Suppose you know the following information about a market: Future is at 66 70 strike straddle is ...
6
votes
4answers
301 views

Shorting an option every day vs shorting only at maturity

Suppose we have 2 strategies : strategy A : every $N$ days, we short a call option with a time-to-maturity of $N$ days; strategy B : every day, we short $\frac{1}{N}$ of a call option with a time-to-...
0
votes
1answer
45 views

Replicating option strategies

I was curious if there was any references to replicating option strategies i.e. bull spread, bear spread, butterfly, strangle, straddle, etc...? Also what is the insight into replicating of these ...
1
vote
1answer
48 views

Effect of different maturity options in delta-gamma-hedging

I read about hedging with options and think i got it. However there is a case am not sure how to handle. Is there any exception in the delta-gamma-hedging-(calculaton-)technique? - say: solve an set ...
3
votes
0answers
34 views

Calendar spread: What are the worst cases?

I am looking to solely make use of the theta decay and trying to overcome the effects of delta and Vega. ​​If, I sell ABC Feb OTM (strike price X) with 3 x 10 = Rs. 30 credit and buy ABC Mar OTM (...
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vote
0answers
105 views

Computation of option vega under CEV

It is easy to define the option vega $\nu=\frac{\partial C}{\partial \sigma}$ under Black Scholes model since volatility is a single quantity. However, under CEV or local volaility model, it is ...
2
votes
6answers
346 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 ...
3
votes
2answers
225 views

stock option strategies long vs short

What makes an option strategy long or short? I got the impression that if it is a net debit (you pay to open the strategy) it is classified 'long' (strangle, straddle) Then I learned about the call ...
2
votes
2answers
252 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 ...
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3answers
165 views

delta hedging strategy for OTM option

Wondering how you would think about the following thought experiment - suppose you sell an OTM call option and plan to implement a delta hedging strategy whereby if the price of the stock were to ...
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vote
2answers
102 views

Analysis of exercising a call option early

Most options traders sell their call options early instead of exercising them, as you would make a bigger profit this way due to being able to salvage some remaining extrinsic value. For example: ...
0
votes
0answers
55 views

Delta hedge compound option

Delta hedge portfolio should be adjusted from one period to the other, as the ratio changes. How does it work with compound options though? Suppose, I have a put on a call option on a stock, in 2 time ...
0
votes
1answer
93 views

Black_scholes formula for a butterfly option

Im wondering if I can apply Black-Scholes formula to valorate a butterfly option, i.e: $$B(T)=Vcall(S(T)-K,0)+Vcall(S(T)-K',0)-2Vcall(S(T)-K'',0)$$ with $K<K''<K'$, just evaluating each call ...
3
votes
3answers
132 views

Implied volatility of a complex options position

Assume I have a "complex" options position like a straddle, strangle, or iron condor. In other words, several options traded together as a single position against one underlying asset (not a basket ...
4
votes
2answers
275 views

How to trade leveraged ETFs

Leveraged ETFs (LETFs) are known to lose value over time due to the "volatility decay" effect. What're the most common strategies for trading LETFs to take advantage of this volatility effect? Also, ...
0
votes
0answers
23 views

Selling two uncorrelated OTM options lowers the over all probability of profit?

I am trying to simulate shorting two uncorrelated put options, I wrote a python program and used monte carlo method to simulate the PnL on expiration: gist It seems the probability of profit is ...
1
vote
1answer
54 views

Is it possible to detect a belief that a security will peak and then decline by analyzing American options pricing?

Please forgive me if this is a dumb question. I know only the basics of options and their valuation, and this is a question I've wondered for some time without being able to find a satisfactory answer ...
0
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0answers
74 views

Discrete Hedging of Options

Assume that a stock $S_t$ follows simple geometric Brownian motion. Let's say we sold option whose payoff is $f(S_T)$. Now, we are only allowed to trade 2 times in the interval [0,T]. What kind of ...
16
votes
3answers
4k 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 ...
11
votes
1answer
375 views

What mathematical models did Harry Markopolos run to prove that Bernie Madoff 1% a month gain was a Ponzi scheme?

http://www.cbsnews.com/news/the-man-who-figured-out-madoffs-scheme-27-02-2009/ Asked how long it took him to figure out something was wrong, Markopolos said, "It took me five minutes to know ...
0
votes
0answers
49 views

Risks Associated with Option Arbitrage Portfolio

If my math is correct, if I construct the following portfolio of options the worst that I can do regardless of what the underlying does is profit $1.74 (less commissions). Is this correct? Are there ...
3
votes
0answers
75 views

why many option contract price less than minimum boundary price?

I downloaded data from NSE(National Stock Exchange) website regarding closing price of European Call Option written on Index. From standard textbook, I read that option contract must satisfy $C(t) \...
1
vote
4answers
188 views

analytic formula for the value of an American put option

It seems to be a foolish question but I can't take my mind off from , Is it true that there is no analytic formula for the value of an American put option on a non-dividend-paying stock (or a divident ...
2
votes
2answers
174 views

Exercise on American call option and dividends

Consider an americal Call option on an underlying paying dividends. Then it is often argued that it is only optimal to exercise right before the dividend is paid out, otherwise one will not exercise. ...
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6answers
13k views

Are there any good tools for back testing options strategies?

There are all kinds of tools for backtesting linear instruments (like stocks or stock indices). It is a completely different story when it comes to option strategies. Most of the tools used are ...
3
votes
2answers
194 views

Why/How does a hedged portfolio make profits?

This is probably a very easy question but I am new to the field and couldn't find an answer. Assuming that I am building a hedged portfolio with a long option and going short delta on the underlying. ...
1
vote
2answers
310 views

Option arbitrage with dividends?

If a stock pays a discrete dividend, the stock price falls by the amount of the dividend. There is no arbitrage opportunity from this predictable jump, because the investors receive the same amount of ...
2
votes
2answers
153 views

Short volatility strategy using strangles

For a short volatility strategy using option strangles, is it better to target a fixed premium to earn? Or a fixed vega? Objective is to maximise the return/risk (sharpe) of the strategy. Any help ...
2
votes
1answer
76 views

How to measure the performance of an systematic option strategy

I have a strategy based only on option instruments and I am trying to measure its performance to optimize some parameters. But how does one measure the performance of such strategies? For Sharpe ...
8
votes
2answers
3k 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 ...
0
votes
1answer
73 views

Are “American” option strategies traded OTC?

Is there such a thing as an American butterfly spread? For a European butterfly spread simply buying 1 put with strike price X+a, 1 put with strike price X-a and shorting 2 calls with strike price X, ...
1
vote
1answer
35 views

What is the strike of a short put that mimics a covered call

If I am long a stock $X$ which I purchased at $\$100$ and sold a covered call in the front month with strike $\$105$ for $\$2$ then is it true that the covered call is equivalent to a naked put at ...
1
vote
2answers
1k views

Why a calendar spread is a preferred strategy in a low volatility period

What is it about a calendar spreadas opposed to other spreads(e.g vertical spread) that makes it such a popular strategy for a period of low implied volatility? Is it that when low volatility turns ...
0
votes
1answer
754 views

Under what circumstances would one want to delta hedge a straddle

Under what circumstances would one want to delta hedge a straddle option? This link explains: ...
2
votes
1answer
1k views

Effect of time to maturity on european put option

Let $C(K,T,S_0)$ denote the price of an European call option with strike K and maturity T on underlying price $S_0$. Assume interest rate $r>0$. Then of course $C(K,T,S_0) \geq 0$ and $C(K,T,S_0) \...
4
votes
1answer
202 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 ...
9
votes
2answers
2k 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 ...
1
vote
1answer
298 views

Given future price probability distribution, what is a strategy that maximizes return?

Say I know the price probability distribution, e.g., lognormal(p,s), of a stock X at a future time ...
1
vote
1answer
132 views

Mysterious disappearance of options from historical datasets

I am in the process of analyzing historical options data, and I keep finding options that mysteriously disappear before they are due to expire. For example: For the QQQ $69 Put, http://www.eoddata....
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3answers
847 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 ...