5 ms·
That option expiries in 2 days - very unlikely it will drop $3 in that time. Historical volatility for FB is around 6% for a 2 day move which at current level i
by retube 14y ago
That option expiries in 2 days - very unlikely it will drop $3 in that time. Historical volatility for FB is around 6% for a 2 day move which at current level is about $1 in price terms. So you need a 3 standard deviation move for this thing to be in the money, i.e about 1 in 1,000 chance. I'd sell you that :)
- Silhouette 14y agoHistorical volatility for FB is around 6% for a 2 day move which at current level is about $1 in price terms. Presumably the point is that not everyone is expecting the next couple of days to be "normal", given the amount of shares potentially going on the market as the lock ups end. Obviously that doesn't necessarily make the mentioned deal a good one, but it doesn't make much sense to assume anything about the stock price movements today based on the limitations of yesterday.
- retube 14y agoOh sure - and indeed 3-out puts are about double the price of 3-out calls.
- apw 14y agoDo you actually invest using these ideas? Why is a univariate Gaussian fit to recent sample data a good way to estimate risk!?
- retube 14y agoI don't mean to imply that stock prices are perfectly normal/lognormal/insert your favorite distro here. Nor do I mean to imply that future price action will match past price. It's just a simple model to illustrate that compared to historical price action you'd need a pretty big 2 day move for the stock to hit $17. How would you evaluate the risk/reward profile of this option?