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Why do any of the other variables matter if the market is collectively fighting between "overpriced and underpriced" on premium/implied volatility?
by MuffinFlavored 3y ago
Why do any of the other variables matter if the market is collectively fighting between "overpriced and underpriced" on premium/implied volatility?
- kflansburg 3y agoYou can find an IV that makes sense for a single option with invalid other parameters, but things will break down when you go to price other expirations / strikes. When trading, you don't want to wait to see an "updated" IV, you would want to respond directly to changes in important and well understood parameters like underlying price.
- sheepscreek 3y agoThe Black-Scholes equation describes the unconscious biases that influence the price of options. It is able to beautifully separate the one quantity that every trader prices differently from the rest. That’s volatility. All the other factors, time including, are the same for everyone.
- lordnacho 3y agoThey don't really matter. They are just things you look up in order to a get a number out for what the option costs in dollars.