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I am looking for ways to express a directional bet on a commodity through futures options.

Assume that there's 50% probability that oil will spike up 100% in the span of 30% during the next 9 months and that the spike will not last more than 15 days.

How to plug in this opinionated view of the future distribution of oil returns in an option pricing model to calculate which options or options' combos are mispriced based on this view?

Ideally I am looking for a python library which can let me find the answer.

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  • $\begingroup$ You'd need to simulate a price process that follows that view, and then assuming it is the risk neutral distribution (keyword risk-neutral) of the price of the underlying, you draw many monte-carlo paths and take the average of their terminal values to arrive at the final price. $\endgroup$ Jun 29 at 19:58
  • $\begingroup$ Thanks - makes sense! What do you mean by risk neutral distribution and what python libraries do you recommend for coding the simulation? $\endgroup$
    – Spasski
    Jun 30 at 0:22

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