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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1answer
26 views

Calculating the theoretically fair value of this futures contract by assuming monthly compounding

I need a help for the following question: A stock index is constructed by including only two stocks in the index. One of the stocks (Stock $1$) currently sells for $250$ dollar and the other stock (...
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48 views

How to identify market makers in an orderbook?

I am trying to identify markets makers within an (options-)orderbook. Of course, this is far stretched, but I was wondering what kind of characteristics / patterns I should look at. I got the ...
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How are VIX futures being priced when the VIX itself is not being calculated because of circuit breakers

I see that CBOE has halted trading all SPX options, which means the VIX cannot be calculated. Yet VIX futures are still trading and we are very close to the last trade date for the March contract. I ...
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1answer
27 views

Historical energy market data for European power Futures and Options?

I have been trying hard to find some historical futures and options electricity data for EEX offerings. I need the data for a model I am writing, however I have not found any free resources so far. It ...
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70 views

Should a normal distribution be used for valuing options on assets that can potentially have negative prices?

The Black-Scholes-Merton model assumes that the prices of the underlying asset at maturity are log-normally distributed. I understand that this assumes that the prices can never go below zero. ...
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1answer
77 views

Expected Delta hedging frequency as function of implied (and realized) volatility

I'm looking for a proxy (or some rule of thumb) that can create a link between the implied volatility, the realized volatility and the frequency of Delta hedging required to keep the Delta as close as ...
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1answer
22 views

Call/Put Open interest difference on similar underlying

High open interest for a given option contract is an indicator for interest in that option. For that reason I wanted to take a look at how the open interest of options on volatility have evolved in ...
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1answer
20 views

Hedging/Arbitrage with multiple period binomial tree

Plenty of material is written on how to hedge/arbitrage option price in one period binomial model, but I cannot find anything about hedging in multiple periods. If one to use multiple periods binomial ...
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1answer
86 views

Double Call Option

A double call option allows the holder to either exercise at time $T_{1}$ or time $T_{2}$, where $T_{2}$>$T_{1}$. With corresponding strike prices $K_{1}$ and $K_{2}$, it can be shown that it is never ...
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Barrier option with zero-strike

Good morning, everybody, I would like to know whether an up-and-out call option with a zero strike has a special name in the list of exotic options or is still a special case of a barrier option.. ...
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Which textbook proves that $Pr(Touch) \approx 2 \times Pr($Probability of In The Money)? [closed]

This Reddit comment alleges $Pr(Touch) \approx 2 \times Pr($Probability of In The Money) can be proven with Bayes's Theorem. To exempt you the effort, I'm guessing that some textbook must've proven ...
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How to show the Bermudan put option is convex in strike price?

Is there a way to generalise the arbitrage argument for a European put being convex in strike price to the Bermudan option? (i.e. considering two portfolios, showing one has greater value than the ...
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1answer
101 views

How to hedge PLN account on Interactive Brokers

I know that you can't have PLN account on IB, the PLN input is exchanged into USD, GBP etc. currency. However I would like to hedge the other currency exposure against PLN, or at least find out how to ...
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36 views

Create a Synthetic Single Stock Future

Is it possible to create a synthetic long single stock future using the stock and it's vanilla options with the caveat that selling naked puts is NOT allowed? That is, you can write puts, but they ...
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3answers
96 views

Why are options on commodity futures traded instead of options on spot commodities?

When people mention "commodity options", they almost invariably mean "options on commodity futures contracts". Why do commodity options have futures as underlying, and not the commodities themselves ...
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1answer
51 views

Trying to code Haug's 4.19.7 Double-Barrier Binary Asymmetrical

The following Clojure code correctly outputs the table in section 4.19.6 of "The Complete Guide to Option Pricing Formulas", but I'm wildly out on the asymmetrical in 4.19.7. ...
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1answer
306 views

Exercise Probabilities Vanilla Cap/Floor

When looking at the discounted pay-off formulas of a vanilla caplet and a vanilla floorlet $\frac{\Delta\tau}{1+r_k\Delta\tau}\max(r_k-r_{cap},0)$ $\frac{\Delta\tau}{1+r_k\Delta\tau}\max(r_{floor}-...
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What are your favourite papers about European/American options?

I'm looking for some papers to support some options lessons for non-quant people (mostly traders) and I'd like to know what papers would you recomend that don't have a very strong focus on the ...
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After you exercise a call option to buy at $90, how can you have another 30 seconds to buy at \$89.95?

I don't understand this example of Pin risk (options) - Wikipedia. When the call buyer exercised, wouldn't $\color{limegreen}{\text{exercise}}$ have automatically and instantly bought him 1000 ...
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Historical S&P 500 OPTION data on WRDS, no access to Option Metrics

I'm looking for historical data of S&P500 options. I have access to Wharton Research Data Services (WRDS), however, my university does not provide access to Option Metrics. Is there another way ...
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1answer
86 views

Understanding the notion of future options

I am currently studying different types of option-related derivatives and I am quite confused about the notion of “futures options”. My textbook says that A futures option is the right, but not ...
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1answer
52 views

Is there a reason why futures and options have more substitutes than other financial instruments?

This is somewhat non-technical question, but it seems like this forum is still the best place for it. I'm reading Shleifer's Inefficient Markets, where he points out that [...] for futures and ...
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1answer
614 views

Risk management tools for long term Gamma/Vega sellers subject to margin calls

TL;DR: if you're a retail investor and you systematically sell long-term vertical spreads while staying Delta-neutral, your main risk comes from Vega and the Gamma of opening gaps that can throw you ...
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Is there a name and/or calculation to get the break-even for calls compared to holding plain stock?

I recently found myself in the position of wanting to buy some leap calls instead of stock to get more leverage, I tried to calculate the pricepoint at which the leaps were returning more than just ...
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Calculate strike from Black Scholes delta

I have a list of deltas and their corresponding volatilities in an FX market but I want to go from delta to strike price. In this Question similar problem is being discussed How can I calculate the ...
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1answer
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If a put seller shorted 7500 shares, and a put buyer exercised 49 contracts, why must the put seller now buy back 2600 shares? [closed]

I don't understand Wikipedia's example on Pin risk (options). I don't understand the bolded sentence. Why would've the put seller already shorted any share, let alone \$7500 shares? Why not just wait ...
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Advice on learning C++ and its integration with Python/R/MATLAB for quantitative finance

For some background information, I am a PhD student in economics. Although I did not study in finance previously, I took a course on stochastic calculus and a course on asset pricing in incomplete ...
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1answer
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Is Touching the same thing as At The Money?

Zvi Bodie, Alex Kane, Alan J. Marcus's Investments (2018 11 edn). p 659.       An option is described as in the money when its exercise would produce a positive cash flow. ...
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Numerical Solutions to PDEs with Financial Applications

I am reading a paper by Richard White, Opengamma named Numerical Solutions to PDEs with Financial Applications. There is an implementation codes as stated in paper hosted at https://opengamma.com/...
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333 views

Vanilla Option Prices from Local Vol Surface (using neither MC nor PDE)

There are numerous papers that describe the derivation of the Local-Vol equation using available market prices of options. For example: Dupire's formula (see e.g. OpenGamma (2013)) gives us LV in ...
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1answer
107 views

Active vol strategy within a portfolio

Suppose I'd like to have 10 % of my portfolio allocated to "long volatility" by rolling straddles . Obviously going all in on one trade implies significant risk of losing all the money. Does anyone ...
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1answer
90 views

How to manage theta, gamma, vega, and delta risk in options market making simulation

I'm just starting to learn how to trade options and as part of an algorithmic options market making simulation I have risk limits for the greeks (gamma, vega, delta, and theta). There are 9 strikes ...
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1answer
77 views

Why would the market systematically underestimate the probability of unlikely events?

(I'm not in finance, so pardon my ignorance) In The Big Short (2015), there is a little story about Cornwall Capital's early trading strategy: Their strategy was simple and brilliant. Jamie and ...
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3answers
63 views

What is the benefit of buying stock options vs. purchasing stock? [closed]

I am aware that this is a simple question; but, given the scenario below, I have not found a satisfying answer while searching this site or Google. My understanding Stock options have been described ...
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1answer
66 views

Put-Call parity arbitrage relationship

I would like to know what the relationship is between the time value of call/puts. From the put call parity formula $$C-P = S_{t} - PV(K)$$ and that value of call/put options is simply the sum of ...
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Insured Portfolio via call + cash: how much cash?

I am unsure about the quantities to keep in the risky asset, S, and the non-risky asset, M, when constructing an insured portfolio via Call + Cash (rather than Stock + Put). My understanding so far is ...
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Second derivative w.r.t. strike as risk-neutral density?

According to Breeden & Litzenberger(1978), the second derivative of the call-value-function, with respect to the strike price, can be seen as the risk-neutral density of the underlying asset at ...
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Hedging Covid-19 and other low probability high loss risks

Covid-19 and similar risks are low probability, high loss events. Does it make sense to utilize options to provide hedges for such events? For example, should one utilize long positions in deep out-...
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1answer
101 views

GARCH(1,1)-M MLE optimization with fmincon in R

I've searched thru dozens of papers and did not find in any of them satisfying and enough theoretical answers to my concerns. So I've combined everything what I found below. Please indicate if my ...
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Quick Question: Error in Theta Put Option for Black Scholes VBA

I have started an analyst role and I am trying to familiarize myself with the Black-Scholes formula in VBA to gauge option prices. However, I cannot seem to get the Put Theta to work properly. I have ...
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why don't people trade KOSPI2 options electronically

I checked the screen market of KOSPI2 and found that there are reasonable quotes only for the first two months contracts. I understand in Korea there are some restrictions on foreign investors but I ...
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1answer
204 views

Hull-White calibration volatility as a function of time

I need some help for the parametrization of the volatility parameter in the Hull-White model. I have the necessary Caplet vols and I calibrated the HW model to match the Caplet and hence the Cap ...
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1answer
69 views

How to normalise options? Normalise strike price, premium, tenors

I would like to normalise options, to being able to compare it. Make price of underlying symbol = 1, have same tenors, and same step for the strike price. 1) Use 1 as stock_price and scale ...
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63 views

Properties of straddles given different maturities

Lets say one wants to use straddles to "go long vol". Is there any way to give general properties of the different lengths of expiry of such a strategy. Or general pros and cons of having longer vs ...
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42 views

Double jumps stochastic volatility model (SVCJ, Duffie et al, 2000) - characteristic function for VIX

Currently I am working at my master's degree paper where I want to evaluate VIX options using stochastic volatility jump models.I got some MATLAB codes for the SVCJ model for the S&P, but as the ...
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Replication Portfolios and Binomial Option Pricing

To price a call/put option with two possible future states of the world, I understand we can price the option by essentially calculating the price of a replicating portfolio that gives the same ...
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1answer
37 views

Is the market price of risk subjective?

Assume a model defined in a incomplete market. Assume that model contains some parameters $\theta_1 ... \theta_k$. In a risk neutral setting, one more parameter appears into the modeldynamics which is ...
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How to visualise Option Strategies P&L with different dates in 2D?

How to visualise P&L of Option Trading Strategy with different dates in 2D? To better understand, get intuitive feeling and think about what's going on. Especially highlighting the maximum ...
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1answer
187 views

VXX Put pricing

Last week at Friday's close, the Dec 14 37.5 Put options were selling for \$.68 with VXX at \$40.29. This week at Friday's close, the Dec 21 37.5 Put options were selling for \$.38 with VXX at \$40.50....
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39 views

Option symbology with reuters DSWS

I am trying to systematically extract option data at a certain date based on the underlying. Input: interchangeably ISIN/RIC/Mnemonic Output: list of underlying symbols, preferably mnemonics. I am ...

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