Finding underpriced options

Discussion in 'Options' started by Neoxx, Jan 2, 2006.

  1. Neoxx


    In your experience, what have you found to be the most effective way of finding underpriced options?

    How reliable is comparing current implied volatility to mean historical volatility?

  2. Maverick74


    Historical volatility is a terrible way to guage how cheap or expensive implied volatility is. Implieds lead the historical vols. It's useless.
  3. zxcv1fu


    Do not waste your time for this. All options are price correctly. If they are cheap, may be they have low chance to move.
  4. Neoxx


    How should you guage the value, and how can you find underpriced options?
  5. Maverick74


    Why exactly are you trying to find undervalued call options?
  6. Quote an IV column based upon the midpoint of the bid/offer. Many off the shelf apps like OptionVue or Microhedge will do, or simply quote it in excel.

    Use the atm combo vol as the vol for pricing vol skew and under/overpriced values.
  7. Neoxx


    I realise the internet's not the most reliable source for information but I read this on

    Hopefully I'll understand what this means after I've read Baird's book- :D
  8. Maverick74


    Yeah, I would disregard that. Totally false. At least, he is misleading you.
  9. Unless you know what the future volatility will be, it is impossible to find undervalued options. Options are only undervalued in hindsight, not foresight. Relative mispricing due to Vol skew really is quite small and not a viable strategy for the retail trader paying spreads & commissions.

    However, if you know how to calculate future volatility I think we could do some business together....
  10. ============
    Actually the pitmaster had 4 well thought points except wouldnt call simply applying those 4 a ''house edge'',by buying.

    Maverick wondered why call options???;
    & you may see call options get more underpriced ,
    MUCH more underpriced as long as underlyings keep goING down:D
    #10     Jan 3, 2006