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