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3 votes

If American Options always have positive time value, how can it be optimal to exercise an American Put early?

“How is it ever optimal to throw away positive time value?” Answer: when the thing you are throwing away is less than what you are gaining through the early exercise . What is that ? Interest you ...
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3 votes

Comparison of the American and European call deltas

This is true, $\frac{\partial}{\partial S}C_\text A(S,0)\in [0,1]$ and that the difference is bound above. Proof: Suppose $S\ge 0$ follows a local volatility process $$dS(t) = \sigma(S(t),t)S(t)\,dB(t)...
  • 2,591
1 vote

Binomial Option pricing, paper by John C. Cox, I don't understand the calculation / choice of u.d.q

I found their estimate for q, it's equation (4.8) at page 8 here: On Cox-Ross-Rubinstein Pricing Formula for Pricing Compound Option I read ...
3 votes

Does skew flatten with a decline in volatility?

The description by Bennett is not very clear, but the reference to the Figure 103 in the text at the end of the paragraph that you cite should resolve the issue. Bennett is saying that once the sudden ...
1 vote

How to calculate expected value for an underlying contract and expected value for an option?

In options trading, an option position refers to the ownership of an option contract or a combination of option contracts, whereas an underlying position refers to the ownership of the asset or ...
6 votes

Intuition behind calendar spread max loss

This is not necessarily true. Take a high dividend paying stock (10%) for example. If deep ITM, you would have a loss higher than the initial cost for european options, or face an early exercise for ...
  • 6,329
3 votes

Intuition behind calendar spread max loss

Based on the clarification in the comments, I would give the following reasoning: If the stock price moves far away from the strike in either direction, then the maturity of the call option matters ...

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