25 lines
1.1 KiB
Plaintext
25 lines
1.1 KiB
Plaintext
143
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Chapter 7
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FIndIng MIsprIced
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OptIOns
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All our option-related discussions so far have been theoretical. Now it
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is time to delve into the practical to see how options work in the market.
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After finishing this chapter, you should understand
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1. How to read an option chain pricing screen
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2. Option-specific pricing features such as a wide bid-ask spread,
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volatility smile, bid and ask volatility, and limited liquidity/
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availability
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3. What delta is and why it is important to intelligent option investors
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4. How to compare what the option market implies about future
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stock prices to an intelligently determined range
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In terms of where this chapter fits into our goal of becoming intelligent
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option investors, obviously, even if you have a perfect understanding of
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option and valuation theory, if you do not understand the practical steps
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you must take to find actual investment opportunities in the real world, all
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the theory will do you no good.
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New jargon introduced in this chapter includes the following:
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Closing price Bid implied volatility
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Settlement price Ask implied volatility
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Contract size Volatility smile
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Round-tripping Greeks
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Bid-ask spread Delta |