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The reason I discovered options prices were wrong is because for fun I created an In-The-Money visualization graph for when you're doing advanced options spread
by benstopics 8mo ago
The reason I discovered options prices were wrong is because for fun I created an In-The-Money visualization graph for when you're doing advanced options spreads and I noticed that the graph was asymetrical and profitability and loss made no sense. So with the help of Claude we debugged the code and came up with a pricing strategy that was closer to Black-Scholes. And it really is because it takes into account industry volatility and such it was a fun side quest and Michael is happy with the result which I am very proud of! It really makes me confident that one day, long live the king but, he is in his 80s. Decades from now I will be able to survive on my own, I hope.
- davedx 8mo agoBut wait... That's a real phenomenon in markets, called volatility skew! Volatility Skew: An uneven curve indicating directional bias. Commonly, equity markets show negative skew (higher implied volatility for OTM puts), signaling concerns about downside risks. Options pricing is a real rabbit hole. https://www.luxalgo.com/blog/volatility-smile-vs-skew-key-differences/ https://www.luxalgo.com/blog/volatility-smile-vs-skew-key-di...
- jldugger 8mo agoWell, sometimes the way to teach people about pricing is to present them with incorrectly priced markets to exploit?
- michaelcampbell 8mo agoThe market price IS the correct price. As is often said, "all models are wrong, but some are useful", including B-S.