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Put_Master
Registered: May 2009
Posts: 1029 |
10-29-12 04:46 PM
<<< Atticus is saying that if you look at the implied vola calculation (output! not input!), they will likely go up (as in, option prices won't drop *as much* as you'd expect from a loss of 5 calendar days). >>>
Yes, but the issue being discussed is theta. Not changes in vol or price movement.
All I'm saying is theta continues, as it normally would. That no one is going to freeze (manipulate) it.
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cdcaveman
Registered: Aug 2011
Posts: 3514 |
10-29-12 04:50 PM
Quote from heech:
Nobody needs to "manipulate" theta or vega or any other parameter. Common mistake is to think of these parameters as inputs that can be manipulated... they're outputs, you calculate them based on what options are currently priced at.
So, how are options priced?
Market-makers aren't going to take a speculative position to push option prices anywhere. Just like is the case with any other security, there will be natural supply and demand. IMO, barring some other major event... there's no way buyers of options will pay as much for an option this Wednesday (for example) as they would've paid last Friday. Prices will certainly have dropped.
Atticus is saying that if you look at the implied vola calculation (output! not input!), they will likely go up (as in, option prices won't drop *as much* as you'd expect from a loss of 5 calendar days).
i get that they are outputs... supply and demand is the driving force in any market...... my thoughts are to a certain degree things that were going to get done today are still going to get done.. if nothing is neither created or destroyed orders will build a little and compound into a day in which the market is open.. causing an increase in vol and a decrease in realized theta. because there is built up supply and demand to be realized on the day the market will open.. theta is just a measure of the loss of premium over time.. if demand superceeds.. theta will freeze .. as in the case with earnings..
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sle
Registered: Apr 2003
Posts: 1609 |
10-29-12 05:06 PM
Quote from heech:
So, how are options priced?
It's an interesting question. As an ex-MM I feel that you actually do start with volatility and time as the inputs, not with the option prices. In the end, obviously, supply/demand establishes an equilibrium, but the initial market is established as a function of the market-makers opinion of the fair volatility and apparent time to expiration.
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Put_Master
Registered: May 2009
Posts: 1029 |
10-29-12 06:13 PM
Quote from sle:
It's an interesting question. As an ex-MM I feel that you actually do start with volatility and time as the inputs, not with the option prices. In the end, obviously, supply/demand establishes an equilibrium, but the initial market is established as a function of the market-makers opinion of the fair volatility and apparent time to expiration.
Well stated.
The issue is really all about that initial 1st minute of trading after the market re-opens.
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cdcaveman
Registered: Aug 2011
Posts: 3514 |
10-29-12 06:59 PM
Quote from sle:
It's an interesting question. As an ex-MM I feel that you actually do start with volatility and time as the inputs, not with the option prices. In the end, obviously, supply/demand establishes an equilibrium, but the initial market is established as a function of the market-makers opinion of the fair volatility and apparent time to expiration.
I imagine if you trade volatility... the price is a derivative of volatility and time is just the line in which realized vola exacts itself upon the implies.... realized is what actually ends up determing the fair value.... fair value seems to me a hindsight thing.. "fair" respectively to a MM would to me mean that there is expected profit given the MM ers vol forecast assumption.... this is not a statement... its a question in the form of a statement... sle you can tell me if I'm far off in this..
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optionatrix
Registered: May 2009
Posts: 46 |
10-29-12 08:33 PM
At least the market isn't closed on Thursday & Friday. What would one do with weekly options? Take a risk in exercising OTM options based on low volume stock futures prices (if they're even open)?
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