Hi, guys! I'm fairly new to the vol scene, and this is actually my first post on ET. My question is, when using the bscall() for example, there needs to be a vol input. This may sound a bit newbie, but if I believe that vol is mispriced, how should I go about pricing the fair value of the vol? For context, I am using RStudio (semi-beginner) and understand most terms but would appreciate layman terms where possible.
Lets take a quick look at an option. ROKU Apr25 58 strike call. Spot = 58.1 Strike = 58 R = .04 Current Market Ivol = 90% DTE = 14 dividends = 0 So your function is. bscall(58.1, 58, .9, .04, 14/365, 0). That will give you the price of the option currently ($4.16) Lets say you think vol should be 40% bscall(58.1, 58, .4, .04, 14/365, 0). That will give you a price of $1.9. So those options are over priced by $2.26 It seems your first step should be to focus on what you think implied vol should be and not price. Once you have your implied vol number you can just input it into the formula and you'll be able to see if there is any edge.