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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34 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?

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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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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75 views

How to understand broken wing butterfly option strategies?

I feel very confused about the greeks analysis for the broken wing butterfly strategy. Let's say for the stock ABC, we enter into a such strategy: we long a put option with strike $k_1$ and another ...
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1answer
143 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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28 views

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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1answer
44 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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35 views

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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53 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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65 views

Is there a sound logic for buying a portfolio of call options in the same ratio as you would buy the underlying shares?

Suppose I believe it would be profitable to build an investment portfolio by investing, say, USD 30,000 in stocks in the following ratio: 30% in shares of CompanyA, 30% in CompanyB and 40% in CompanyC....
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316 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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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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90 views

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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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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71 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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720 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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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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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
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Is this a new way to profit from earnings releases using long straddles?

How much can I reasonably make if I buy a long straddle just as soon as earnings release day is announced and ride the rise in implied volatility along with any movements till the earnings release ...
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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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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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Calculating European call option, the Bjork way

We have a 3 period binomial tree with values: ...
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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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Intuitive explanation of put option pricing based on put-call parity

Assuming no dividends, the put-call parity equation says: $c + \mathrm{Ke}^\mathrm{-rT} = p + S$ where $c$ is the price of the European call, $p$ is the price of the European put, $S$ is the current ...
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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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1answer
132 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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1answer
4k views

Barrier option (autocallable) Vega profile

I have a question about the Vega profile(graph) on an autocallable option. Generally for a regular option, the vega graph looks like a normal (kinda normal) distribution with the vega highest at-the-...
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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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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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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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Option arbitrage from portfolio value on bitcoin market

I'm trying to arbitrage bitcoin option market but I have issues because : The trading asset and settlement is in BTC I want to earn money regarding USD I neeed to be constantly hedge I have ...
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1answer
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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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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209 views

Why do some principal-protected notes reset the gains to zero?

I was looking through the principal-protected notes issued by Lehman Brothers. One of them was the "100% Principal Protection Absolute Return Barrier Notes Linked to the S&P 500 Index". The ...
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1answer
210 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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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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1answer
588 views

How to price Swaptions with short rate models?

I have specified a (Lognormal) short-rate model (non-affine) under the Risk-Neutral measure $Q$ as a shifted exponential vasicek: $ r(t) = e^{y(t)} + \phi(t)\\ \text{with} \quad dy(t) = \kappa(\...
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1answer
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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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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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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
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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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1answer
74 views

Hedging a long position-one period from Steven Shreve Stochastic Calculus for Finance

The following question is taken from Steven Shreve Volume 1, Chapter 1, Exercise $1.6$ (Hedging a long position-one period) Consider a one period binomial stock model with $S_0=4$, $S_1(H)=8$ and $...
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Equivalent of LEAP options further into future

If I wanted to buy LEAP options for a particular NYSE stock, however they only issue contracts that expire a maximum of 2 years in the future, are there are other alternative securities/contracts that ...
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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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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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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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1answer
162 views

How many options would be required to dynamically replicate the VIX nowadays?

The VIX is a portfolio of OTM options on the SPX with non-zero quotes. From CBOE white-paper: Only SPX options quoted with non-zero bid prices are used in the VIX Index calculation. [...] As ...

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