Questions tagged [options]

A contract that gives the owner the right, but not the obligation, to buy or sell a security at a fixed price in the future.

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16 views

Determination of critical stock price in compound option pricing

Under the Black-Scholes framework, there is a closed form formula for the price of a compound options, as first derived by Geske (1979). However, the analytical formula refers to a critical stock ...
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How to find the risk-free rate and dividend rate for S&P 500 index options?

I'm currently working on a project using S&P 500 index options(European) data. I haven't done any empirical experiments before, so I'm confused how to find the corresponding risk-free rate and the ...
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How does the real market calculate the option prices when strikes are very small?

I'm working on the S&P500 European index options data(call options). On 2017-10-23, we have the closing price as 2564.98, and risk free rate is 1.09%(3 months treasury bill). If I choose the ...
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48 views

How to get exposure to realised volatility while being vega neutral?

Let's say I am predicting the realised volatility of a stock index. I am buying or selling straddles based on whether the predicted vol is higher or lower than the implied ATM volatility for the ...
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Carr and Madan algorithm to avoid arbitrage in oprion prices

Hey in this text (https://arxiv.org/abs/1107.1834) in section 7 is described an algorithm which can delete options which generate an arbitrage. $C_ij$ is call option price with strike $K_i$ and ...
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Cumulants of Meixner distribution

Hey characteristic function of Meixner distribution is: $$\Phi(u)=\left(\frac{\cos(\beta/2)}{\cosh((\alpha u-i\beta)/2}\right)^{2\delta}$$ I need to calculate the first, second, and fourth cumulant of ...
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36 views

Size Option in Vanilla

How to compute the price of a vanilla option (or a forward starting option) if there is extra optionality to change the Notional by a pre-determined percentage ($a%$, say)at some future time $t$ ...
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48 views

Behavior of Vega PnL for 6 month ATM S&P500 option

I am interpolating the vol surface for 6 months maturity from price data for S&P500 options. For this vol smile I compute the ATM strike. I then assume I can buy a call option at this strike, ...
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1answer
92 views

Calibrate Stochastic Volatility Model

For stochastic volatility models, and any vol model I know, it seems the standard approach is to calibrate the model from option prices. As other user said, this seems a chicken egg problem - how do I ...
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Call options data from 18 April 2002 (Schoutens 2003)

Hey I would like to calibrate different models to call options prices from 18 April 2002. Schoutens used this data for calibration but unfortunately he write only months (screen). What can i do in ...
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1answer
60 views

Hedging predicted volatility

Q. If you predict the volatility of the stock is 10% a year from now and current price is X dollar, how do you hedge the risk? Im not sure why I am finding this so hard. How do we use options (...
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1answer
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Why do you need more no. Of options to hedge less no. Of stocks? [closed]

I get confused regarding this in option greeks. I don't know whether to divide the option by Delta or multiply it.
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Why is the delta for call option positive and for put is negative? [closed]

Why is delta positive for call and negative for put? Please explain in terms of both c+ and c- and p+ and p-
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76 views

Calculating European call option, the Bjork way

We have a 3 period binomial tree with values: ...
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44 views

Finding option price using intraday data [closed]

I have the option price at a rate which is much smaller than the rate at which I have tick data for the underlying. If I have option price at times $t_1, t_3, t_5$ and I have tickdata at $t_1, t_2, ...
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47 views

Risk free rate application to option pricing

We have $S_o = 50, u = 1.0606, d = 1/u, K = 54.50,$ risk free rate $r = 0.1$ per week, maturity in 9 weeks, given a binomial tree (3 steps)with the probabilities given by $q = (1+e^{r(T-t)}/u-d)$, no ...
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50 views

Volatility input for American options

I have to price an american option on a daily basis and I have some questions regarding the CRR binomial tree model: Is it correct to use implied volatility as an input? Or is it better to use ...
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76 views

Why does black scholes model give lower prices for puts with further time to expiry?

Consider BS-model with parameters: Stock = 100, Strike = 100, Texp = 1 year, Vol = 13%, Rf Rate = 3%. For these parameters the BS put price is 3.76. Then consider the same parameters but with Texp = ...
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76 views

Heston model on currency

We could have the formula for Heston model for currency as (under the Risk-neutral measure for $r_d$) - $dS_t = \left( r_d - r_f ...
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Deterministic optimal call time

Consider a American Option on a linear payoff i.e., if called at time $T$, it pays off $S(T)$, the stock price. Is the optimal call time of such an option determinsitc? Is there an intuition to the ...
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83 views

Reason to hedge a European call option

Assume I write a call option on one share of the stock that I have. After selling the option I have an obligation to sell one share of the stock at some future time. I already have the stock, why ...
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41 views

Why are FX options vols quoted in 25RR and 25BF terms instead of by strike like credit options?

Credit options follow a quoting convention for the vols based on strike, which fits in neatly with the Black-Scholes framework. So why are FX options vols quoted in terms of 25-delta Risk Reversals ...
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1answer
101 views

Why are Index/ETF put option volumes generally higher than the call option volumes?

It seems like put options on Index/ETFs generally have 50% more volume than call options, in terms of notionals. We don't see the same put/call volume ratios in single stocks. Why is that the case? I ...
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1answer
63 views

Put call ratio has no meaning confusion

I just can't wrap my head around why the put-call ratio makes sense. Whenever there is a put buyer, there is a put seller, same goes for a call buyer/call seller. In other words, if there are a lot of ...
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3answers
87 views

Leveraged ETF pair trade, where's the gamma/convexity?

I'm trying to better understand leveraged etfs, and specifically how they have convexity and volatility decay similar to options. An older post on this site asked a similar question and one of the ...
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Where can I find the release dates for new options with respect to a specific stock?

For example: Let's say I'm looking for the release dates for options for TM.NYSE, where can I find out when an option with an expiration date later than the currently available (Apr 21) will be ...
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Is there some sort of index of products, their description, and pricing?

I'm imagining some sort of site where you can look up all sorts of products that are traded (swaps, bonds, options, and all the variations that they exist in), and then the site gives an extremely ...
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2answers
113 views

Calculating implied volatility index

What are common methods to compute implied volatility index? One could use VIX method on other underlying. It is also easy to limit the method to 4 atm strikes. Is this a good idea though? What are ...
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Create a video in Matlab [closed]

I'm studying these codes from Mathworks https://www.mathworks.com/help/finance/plotting-sensitivities-of-an-option.html The output is a 3D image. Is it possible to get a video that shows the creation ...
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Cancellable Observation period in a Trade

How do you model a trade with a provision to cancel/unwind an observation period with mutual agreement before this observation period (and for a cancellation fee)? This is unlike a cancellable swap ...
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1answer
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Greeks: Estimate gamma by Monte Carlo finite difference

When I was using Monte Carlo to calculate the gamma of a vanilla call option by finite difference method, I stuck in this weird situation as below. Consider this, $$ Gamma = \frac{CallPrice(S^{up}_{T})...
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Deriving American option greeks

I am using integral representation of option value instead of trees, so I imagine to derive greeks we have to integrate across time for the boundary to get the EEP (Early Exercise Premium) component ...
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1answer
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How do short stock positions lower the value of calls and raise the value of puts?

I'm reading Option Volatility and Pricing by Sheldon Natenberg who in the chapter on Risk Management is trying to explain the effect of interest rates on options. He says The value of a stock option ...
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What are the components of VXN?

What are the exact components of VXN -- the volatility index for NASDAQ-100? The CBOE page links to the document for VIX, which clarifies the exact set of front-month near-the-money SPX options used ...
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1answer
42 views

Managing/Hedging strangle with futures at strike prices

Since I am very new to options, I thought would be great to ask the opinions of the experts in this group. Please note that I will hold strangles till expiration. The goal is to sell strangles (OTM ...
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Easiest possible way to backtest a semi dynamic options strategy

I have a few options strategies Id like to backtest and I have some familiarity with Python. In particular Id like to backtest a "semi-dynamic" long vol. strategy putting on $0$ cost ...
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1answer
38 views

How closely does a Put's premium proxy the opposite Call's Time Value?

What are the odds of being assigned for a long dated in-the-money call option? - Personal Finance & Money Stack Exchange The math gets a little tricky here, but here's a neat trick to at least ...
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In Short/Bull Put Spreads, why not sell a put at A and buy a put at B? [closed]

In Short Put Spreads, why buy an A put, and sell a B put? If $A < p < B$, you can be assigned to your B put, while your A put is worthless. Kevin Ott diagrams this below, but I added A, B. ...
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1answer
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In Short/Bear Call Spreads, why not buy a call at A and sell a call at B? [closed]

In Short Call Spreads, why sell an A call, and buy a B call? If $A < p < B$, you can be assigned to your A call, while your B call is worthless. Kevin Ott diagrams this below, but I added A, B. ...
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3answers
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For Short Call Spreads, if the stock keeps rising, why does a higher Long Call's strike price enlarge the risk?

How's the bolded sentence below correct? I know this is a Short/Bear Call Spread. If MSFT's share price $ < 13 0$, then as $p \to 130^{-}$, the 110 call's price rockets whilst the 130 call stays ...
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39 views

For option spreads, why ought the debit paid $\le 75%$ of the strike width?

Diagonal Spread | Definition of a Diagonal Spread | tastytrade | a real financial network The trade will be entered for a debit. It’s important that the debit paid is no more than 75% of the width of ...
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Option seller: Why is delta hedging required if I am long/short the underlying with same number of lots as the OTM options I sold?

Situation: Sold OTM call while long the underlying. Stock did not tank, it went up too much breaching the breakeven point (strike price+premium). If I sell 1 lot of call options and I am being long ...
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In Long Call Spreads (Poor Man's Covered Call), why wouldn't Rolling be too expensive? [closed]

Are Long Call Spreads = Poor Man's Covered Call? Bob Baerker wrote: If so inclined, you can also write OTM short calls against them, turning your long call LEAPs into diagonal spreads and lowering ...
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In a Diagonal Spread with Puts, aren't you bearish in the back month?

Predicate that you think TSLA is over-priced at $2045, so you buy a Sep 16 2022 \$300 ($= A$) put. but don't think TSLA will crash to \$400 ( $= B$) in a week, so you sell a 7DTE (Aug 28 2020) \$400 ...
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Value in time of the bond in delta-hedging

I am trying to implement a simple delta-hedging strategy. The idea is that I want to verify that the covered position "1 option long + delta stocks short" is actually evolving as $e^{rt}$, ...
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104 views

Ito's lemma and Lognormal Property

What would be the difference between: \begin{align} dS = udt + \sigma dz \end{align} and \begin{align} dS=u*S*dt + \sigma*S*dzdS \end{align} Is that the former is in absolute terms and the latter is ...
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Estimating dividend yield & risk-free rate from Futures prices

I would like to work with the dividend-adjusted Black Scholes formula and need to estimate the dividend yield and risk-free rate. I know that I could compute both rates exogenously. But I am working ...
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1answer
93 views

Does anyone have any suggestions on using Monte Carlo simulations to calculate Greeks of basket option?

I'd ideally like to use algorithmic differentiation or finite difference methods to approximate the Greeks of a basket option. It would be a European style basket on $N$ stocks with the payoff being $\...
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80 views

Option implied data from CME

I am trying to extract the risk free rate and volatility from the traded American options with expiry Nov-2020 from CME. https://www.cmegroup.com/trading/metals/...
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How to price option on a new underlying?

Here is a question i had for a long time but i never asked. Let's take an easy example, AirBnb will likely have an IPO soon, the stock will be quoted on the market. Let's say i would like to price an ...

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