Finding Mispriced Options    • 153
“We think that these prices far below the current price are much more 
likely than they would be assuming normal percentage returns. ” (Or, in a 
phrase, “We’re scared!”)
If we compare the delta-derived “cone” with a theoretically derived 
BSM cone, here is what we would see:
Oracle (ORCL)
Date
Price per Share
60
50
40
30
20
10
-
6/21/201612/24/20156/27/201512/29/20147/2/20141/3/20147/7/20131/8/20137/12/2012
Of course, we did not need the BSM cone to tell us that the points 
associated with the downside strikes look too low. But it is interesting to see 
that the upside and most likely values are fairly close to what the BSM projects. 
Note also that the downside point on the farthest expiration is nearly 
fairly priced according to the BSM, contrary to the shorter-tenor options. 
This effect could be because no one is trading the far ITM call long-term 
equity anticipation securities (LEAPS), so the market maker has simply 
posted his or her bid and ask prices using the BSM as a base. In the market, 
this is what usually happens—participants start out with a mechanically 
generated price (i.e., using the BSM or some other computational option 
pricing model) and make adjustments based on what feels right, what 
arbitrage opportunities are available, and so on.