58 lines
2.3 KiB
Plaintext
58 lines
2.3 KiB
Plaintext
Chapter 34: Futures and Futures Options 685
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There is another way to look at this data, and that is to view the options' implied
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volatility. Implied volatility was discussed in Chapter 28 on mathematical applica
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tions. It is basically the volatility that one would have to plug into his option pricing
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model in order for the model's theoretical price to agree with the actual market price.
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Alternatively, it is the volatility that is being implied by the actual marketplace. The
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options in this example each have different implied volatilities, since their mispricing
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is so distorted. Table 34-2 gives those implied volatilities. The deltas of the options
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involved are shown as well, for they will be used in later examples.
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These implied volatilities tell the same story: The out-of-the-money puts have
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the lowest implied volatilities, and therefore are the cheapest options; the out-of-the
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money calls have the highest implied volatilities, and are therefore the most expen
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sive options.
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So, no matter which way one prefers to look at it - through comparison of the
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option price to theoretical price or by comparing implied volatilities - it is obvious
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that these soybean options are out of line with one another.
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This sort of pricing distortion is prevalent in many commodity options.
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Soybeans, sugar, coffee, gold, and silver are all subject to this distortion from time to
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time. The distortion is endemic to some - soybeans, for example - or may be pres
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ent only when the speculators tum extremely bullish.
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This precise mispricing pattern is so prevalent in futures options that strategists
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should constantly be looking for it. There are two major ways to attempt to profit
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from this pattern. Both are attractive strategies, since one is buying options that are
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relatively less expensive than the options that are being sold. Such strategies, if
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implemented when the options are mispriced, tilt the odds in the strategist's favor,
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creating a positive expected return for the position.
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TABLE 34-2.
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Volatility skewing of soybean options.
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Strike
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525
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550
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575
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600
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625
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650
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675
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Call
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Price
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19 1/2
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11
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53/4
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31/2
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21/4
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Put
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Price
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1/2
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31/4 ;
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12
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28
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Implied Delta
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Volatility Call/Put
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12% /-0.02
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13% /-0.16
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15% 0.59/-0.41
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17% 0.37 /-0.63
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19% 0.21
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21% 0.13
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23% 0.09 |