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.

Filter by
Sorted by
Tagged with
1
vote
2answers
67 views

What's the difference between shorting “borrowed” shares and “fake” shares

Like it or not, millions of people are now looking to r/wallstreetbets for not only memes but to view shared investment research. I've learned a lot about stock options in the past year, but I'd like ...
0
votes
0answers
42 views

calculating risk free interest rate from put call parity

I'm trying to calculate the interest rate $r$ from the put-call parity. As per hull, put-call parity is given by the below equation. $c + Ke^{-rT} = p + S_{0}$ where: $c$ = current call option price ...
-4
votes
0answers
38 views

Black-Scholes hedged portfolio [closed]

Suppose that a Share price $S$ is currently 100 and that tomorrow it will be 101, with probability $\mathcal{P}$, or 99, with probability 1-$\mathcal{p}$. A call option with value $C$, has strike ...
0
votes
0answers
47 views

eurodollar future options basics

I am trying to understand how to calculate the P&L on a eurodollar futures options position. Suppose I am looking at say Dec-2023 99.125 strike put options with a bid-ask of 0.2250 - 0.415. Since ...
0
votes
0answers
43 views

Options Weighted Vega Derivation

Does anyone have a good reference on how to derive time weighted vega for options? The only literature I found was in this presentation: http://www.topquants.nl/wordpress/wp-content/uploads/2015/01/...
0
votes
0answers
45 views

Deep in the money call option with huge value and no open option buyers before expiry and no money to exercise. How would to sell position

Lets say i bought a 95 delta call options with my whole ira account and all options have huge profit values i want to sell these and there are no buyers for it due to huge value. I dont have ...
2
votes
5answers
493 views

Who hedges (more): options seller or options buyer?

When the open interest increases, this means that there is a buyer and a seller of that option. Both seller and buyer are behooved to hedge their positions, with the opposite sign; but I doubt that ...
-2
votes
0answers
34 views

How will demand for an out of the money American-style option affect its price?

Very much a beginner to this space, I had a question about options pricing. On a popular online forum there seems to be a particular option contract which is being "pumped" on a stock with ...
-3
votes
1answer
51 views

Risk-Neutral probability deduction [closed]

Could anyone show me how to get the second row equation from the first row equation please? For each letter, $p$ is the risk-neutral probability in the risk-neutral world, $u$ is the up factor for the ...
0
votes
0answers
34 views

Going long/short in options

When I short a stock, it is because I have a suspicion that the market will fall and I can therefore capitalise by selling high and buying low. In contrast, if I go long on a stock, it is because I ...
0
votes
0answers
32 views

Options market makers market share

Sorry if the question is confusing but I am curious what percentage of options is written by market makers. I know the vast majority of retail investors don't write options; they buy options. I ...
1
vote
0answers
36 views

Extracting implied dividends from American options

I am using end of day options data and want to extract discrete dividend information contained in the option prices. I am doing this for ETFs like SPY where I know the dividend schedule. These are the ...
0
votes
0answers
31 views

Greeks for Asian options on futures

I'm trying to get the Greeks for the PDB Option Contract (Crude Outright - Dated Brent (Platts) Average Price Option): https://www.theice.com/products/26535747/Crude-Outright-Dated-Brent-Platts-...
2
votes
1answer
62 views

Martingale pricing with time-dependent risk-free rate

I want to find the price of a European call-option under the assumption that the risk-free rate $r$ is time-dependent, i.e. $$ d\beta = r(t)\beta dt \leftrightarrow \beta(T) = e^{\int_0^T r(u)du} $$ I ...
0
votes
1answer
140 views

Calculation of market price for option at underlying strike price at some point in future

Would appreciate clarification on the below scenario. If a put option was sold at the start of the week, when the broker (Interactive Brokers) calculates the cost basis (the premium collected) are the ...
3
votes
1answer
121 views

Does CRR Model lose completeness if we add another instrument?

Consider the multiperiod binomial/CRR model with one risky asset $S^{1}$ and a numeraire $S^{0}$. By seeing that the equivalent martingale measure is uniquely determined, we obtain that the market is ...
1
vote
0answers
41 views

How does a hedged portfolio account for other greeks?

So a classic delta-hedged portfolio on a call option is: $$-C - \Phi(d) \cdot B + \frac{d}{dS}C \cdot S = 0$$ How is risk of other Greeks hedged? Is it something like this? $$-C - \Phi(d') \cdot B + \...
3
votes
3answers
147 views

Can banks use reserves to settle liabilities arising from cash-settled options trading?

Here is a hypothetical scenario: Bank A sells 1 SPX CALL/PUT to a retail trader who uses Bank B. The SPX becomes in the money. SPX is cash-settled. So Bank A transfers reserves held at Federal Reserve ...
0
votes
1answer
52 views

Barrier Reverse Convertible

I am a finance student and during my free time I try to understand more financial products. Today I have found a term sheet for a specific type of barrier reverse convertible but I couldn't understand ...
0
votes
0answers
39 views

Hypothetic derivative that absorbs underlying volatility

Market participants are usually assumed to be risk-averse and striving to improve the Sharpe ratios of their portfolios. Thus, if we have an asset A, which is expected to return between \$900 and \$...
1
vote
2answers
482 views

How to prove no-arbitrage when a long butterfly is strictly positive?

I want to prove why there are no arbitrage opportunities when a long butterfly is strictly positive. I know there is a similar topic out there, but it seems it doesn't solve my question: Prove that ...
1
vote
0answers
31 views

Option pricing and GARCH resources

Can anyone suggest resources for option pricing using GARCH models? Although I have a fairly good knowledge of GARCH models, for some reason I cannot seem to be able to follow Duan's paper and how to ...
2
votes
0answers
41 views

Cost of Volga & Vanna in Credit Options?

What are the commonly used methods to compare the cost of volga/vanna in credit index options across time and strikes? In practice, is the Vanna-Volga exposure technique used in credit, or are there ...
0
votes
0answers
26 views

Whitespace in Option Symbols

A while ago exchange-traded option symbols migrated to a 21-character descriptor, formalized by the Options Clearing Corporation (OCC), consisting of: 7 characters: root or underlying symbol 6 ...
1
vote
1answer
47 views

What are the mechanisms at play determining option pricing on stocks?

Suppose a stock is currently at 100. If there are more willing buyers of a stock (retail investors, institutionals etc.) at $110 than sellers (also retail investors, institutionals etc.), you would ...
2
votes
3answers
144 views

What is IV really? Why does an option that is about to expire have such high IV for OTM options?

I was reading this definition: https://investorplace.com/2018/08/what-is-implied-volatility-concern-investors-invtlk/ If its IV stands at 20%, a movement of 20%, or $20 per share, over a 12-month ...
1
vote
1answer
111 views

What is the interpretation if the real world measure $\mathbb P$ is equal to the martingale measure $\mathbb Q$

Out of interest, is there anything noteworthy about a market when its real world measure $\mathbb P$ is actually also its martingale measure. In other words the real world measure $\mathbb P$ is equal ...
2
votes
1answer
62 views

Are option dealers usually net sellers or buyers of single name stock options?

If you know of any systematic studies/data on this, please let me know.
0
votes
2answers
109 views

Storing options EOD time series in Flat Files

I have purchased data for EOD settlements of options prices for USA futures for personal use. I will not need multiple user access or real time access. I am not an expert programmer but use C# and R ...
1
vote
0answers
51 views

3 pairs, FX options, implied vols

I am trying to undertand the relationship between EUR/JPY options and USD/EUR and USD/JPY options. Vol(USD/EUR) = $S_1$, Vol(Usd/JPY) = $S_2$, Vol(EUR/JPY) = $S_3$ The actual Vol follows: \begin{align}...
1
vote
1answer
57 views

About the implied volatility as average volatility over the life of an option

The first time I read about local volatility, implied volatility turned out to be the average volatility from today to the option's expiry date. Let we have two Call options, $C_1$ and $C_2$, expiring ...
0
votes
0answers
37 views

Implied Volatility - Underlying vs Monthly Expiration vs Individual Options

I'm working on calculating implied volatility for historical options data taken from the tradier api. I'm using Davis Edwards fantastic python implementation of options pricing models to get ...
1
vote
0answers
24 views

How do borrow rates in single-stock options affect their prices

Would following approach be suitable: First calculate European option price (does it even make sense to do so, if we are talking about less than 30 dte?), take the diff between European and American ...
0
votes
1answer
67 views

What kind of stock's prices are most affected by option trading?

Option trading translates into stock trading via market maker hedging. For instance, if I buy a call option, the market maker will have to buy the stock to delta hedge. Thus, this should translate ...
3
votes
1answer
137 views

Expected return on Black-Scholes priced option?

Suppose we have a European-style call option on some stock, and it was priced according to Black-Scholes. Everybody agrees on the stock's volatility and expected return. What's the expected return (...
0
votes
0answers
29 views

What is the expected return of a “correctly” priced option if volatility stays constant?

For example, if we take a call option on some stock priced using an option pricing model such as Black-Scholes and assume that volatility stays constant and the underlying stock moves according to the ...
16
votes
7answers
5k views

Why do institutional Traders prefer Short Selling instead of Buying Puts?

Why is it more common for Institutional Traders to short sell stocks when they have a bearish stance instead of Buying Puts? The limited loss potential of Buying Puts seems like a better choice.
4
votes
1answer
163 views

Gamma of interest rate derivatives

consider an interest rate derivative whose value $V$ depends on $n$ interest rates $r_1, \dots, r_n$. Hence $V$ is a function in $n$ variables $V(r_1, \dots, r_n)$. My question concerns the gamma $\...
2
votes
0answers
136 views

What are “call and put walls” around a strike price, to kill off vega and prevent gamma?

Is there another name for this strategy? A colleague told me that hedge fund manager Steven A. Cohen likes to squash volatility with this strategy. Cohen would create massive blocks of expensive ...
0
votes
3answers
36 views

How to track dates when new strikes are added to option chain for any underlying

I believe exchanges try to maintain some range of ITM/ATM/OTM issues for a particular underlying/expiry pair. Eg minimum 5-1-5 to maximum 10-1-10, so there are atleast 5 OTM issues and maximum 10 OTM ...
2
votes
2answers
161 views

Why represent a digital payoff as a call spread

Pricing a digital caplet using Hull White model, which pays: $1$ if $R>K$, $0$ otherwise. Why would you represent the payoff as a call spread, i.e. $$\text{Payoff} = \frac{(R - (K+\epsilon))^+-(R ...
1
vote
1answer
60 views

Single period risk-neutral probability derivation

Let $S_u$ be the price of stock in the up-state one period from now. Let $S_d$ be the price of the stock in the down state. Let $C_u$ be the payoff of a call option at time $1$ in the up-state and ...
0
votes
0answers
31 views

How does Intrinsic and Time Premium factor into deep ITM options for leveraged securities

So I'm curious about the downside risk on this trade. Some backstory - I noticed the options chain for TZA had basically no volume or open interest for deep ITM calls about a week ago while also ...
0
votes
3answers
92 views

Intepreting European call option when expiration approaches to infinity

Assume that dividend = 0, then the price of call option is $$ C = S\cdot P_{s}[S(T) > K] - e^{-rT}K\cdot P_F[S(T) > K] = SN(d_1)-e^{-rT}KN(d_2) $$ where $P_s[S(T) > K]$ = Probability of ITM ...
0
votes
0answers
51 views

How to price barrier options under Black-Scholes?

I am looking for a rigorous proof for the closed form of the price of a barrier option (up-in/up-out) under Black-Scholes model, that is a step by step solution of the solution of the heat equation ...
4
votes
0answers
83 views

Pricing of strange Asian lookback option with European-style payoff $\max\{ \max_{u\in[0,T]}S_u-\frac1T\sqrt{\int_0^TS_t^2\mathrm{d}t},0\}$

I am trying to price the Asian lookback option at time $t$ with time-$T$ (European) payoff $\max\{M_T-A_T,0\}$, where $$M_t=\max_{u\in[0,t]}S_u,\quad A_t=\frac1t\sqrt{\int_0^tS_u^2\mathrm{d}u},$$ and $...
0
votes
0answers
64 views

Options Arbitrage

I have a basic question regarding the BSM formula, would be thankful for any assistance. As far as I understand $N(d2)$ and $N(-d2)$ stand for the probability of a Call and Put respectively being ...
4
votes
1answer
129 views

How much does a rise in volatility in a short-term option affect a longer-term option

How would a rise in implied volatility on a short-term option affect the implied volatility of another short-term option with the same strike, but with slightly-longer expiry? Assuming that the short-...
1
vote
0answers
23 views

Latest and currently utilized research on modeling option pricing with IV smile

As per title, where would I find the latest research papers on modeling option pricing, accounting for IV smile? I'm specifically interested in papers that already found practical application in some ...
4
votes
4answers
161 views

Asymptotics of Call Option as $S\to0$

Let $C(S)$ denote the (initial) value of a call option with underlying spot price $S$. I assume that the underlying has continuous sample paths (not necessarily a geometric Brownian motion though). As ...

1
2 3 4 5
39