New invention for the derivatives market - How to profit of it?

I'm done with this clown. Like talking to a 5 year old.

 

There's no limit how much a stock can go up, but can't go lower than zero for down. So it's natural for puts to value less.

Even on indexes, let alone single stocks, let alone penny stocks which trade today at $2 and tomorrow might be $40.

 

WOW...

 

True that. No amount of logical refutation will convince a crank he is wrong. That is one of the markers of a true crank vs. someone who is simply wrong.

TheCoder has re-invented a form of log contract. But he has no clue on how to price it. Hint to thecoder: Carr-Madan. Just google "log contract Carr-Madan" and download the pdf in the first link.

Edit: see Gordon's answer to this StatckExchange question:

https://quant.stackexchange.com/que...th-payout-lnst-where-st-is-the-stock-price-at

and the links in the comments.

 

"These go to eleven".

 

So you want exchanges to offer FairPUTs with different payouts than PUTs, traders to trade them, with you getting money somehow for creating the idea.

Roseanne Roseannadanna would have said something like "Mr. Coder, you have a lot of big ideas for someone coming from Germany."

I propose a simpler solution. Instead of offering 11.923538 on the PUT, offer 9.936012280 instead. Then if the spot price at options expiration is 83.333333, the payout would still be 16.666667, but the profit would be 6.730654720 which is the same 67.74% as the corresponding CALL when the spot price is 120 at options expiration.

This simplifies the issue because you only need to find one sucker trader to sell the option at that price.

 

Get a quant and a financial engineer to turn your idea into a financial product first and then find a dealer or a brokerage to underwrite it and market it for you.

There is no need to patent it. You just need to get it out there for people to buy it and you will make money.

 

I would stick to just coding. There are plenty of developers in our industry who don't have any clue about trading...yet guys who can code are what prop groups and trading firms are mainly looking to hire.

It's a nice, decent paying, cushy job without any of the stress or headaches of running a book or risk management.

https://www.ziprecruiter.com/Salaries/Algorithmic-Trading-Developer-Salary

 

Ok, I just tried the interesting looking formula in that link. The code snippet below is C/C++:

Code:

   const double ln_St = exp(-q * t) * (log(S) + (r - s * s / 2.0) * t);
   printf("TEST: ln_St=%f  --> exp(ln_St)=%f\n", ln_St, exp(ln_St));

and speculatively this variant:
   const double    St = exp(-q * t) * (S      + (r - s * s / 2.0) * t);
   printf("TEST: St=%f\n", St);

Getting these results:

TEST: ln_St=4.560170  --> exp(ln_St)=95.599748
TEST: St=99.955000

So, what do these results represent?
I unfortunately don't see how it can lead to a better calculation method for FairPut.
Do you know? Does anybody of the "experts" out there know?
Just find a bug in FairPut, if you can .

Walk the walk instead of talking the talk

 

This post of mine is incorrect. My intuition was that since the payout on his "FairPut" is K^2 / S[T] - K, a little middle-school algebra applied to the log-contract formula would account for the convexity adjustment and give a reasonable price. This turns out not to be true.

My next intuition is that a FairPut is just a call on S inverse. So a FairPut on EURUSD is a call on USDEUR, but paying out basis EUR.