Just buy Hoadley's options package--it's worth it. You can go behind-the-scenes and see how things are calculated, etc. Also, FWIW, according to Natenberg, the delta is usually very close to the probability the option will be in the money at some point before expiration. I personally found that interesting. ex. .063 = 6.3%
MTE, should i avg. H.V and I.V and also which H.V works best there is 1 week,1 month, 1 year calculations?? I am assuming the one week data is more accurate. I am mainly concerned with intraday pricing for equities only. Thanks
I second that, Hoadley's package is well worth those $50 or so. By the way, Delta is the probability that the option will expire ITM, not that it will be ITM at any time prior to expiry.
yes, I breezed by there site and thought is was mainly for options trading... I am still learning options and am in my infancy still... the site looks very promising .... Does Hoadly's package have studies for equities based on option data? or only strictly for options sorry if this was a stupid question. thanks
I wouldn't average them out, but you could use the one that gives you a more conservative result. That way you have "extra room" there. HV periods, again you can compare different ones to get a feel for what's been going on.
How close depends on the volatility and time to expiry. It's close enough for fairly low volatilities and near time options. But becomes less accurate as volatility increases and time to expiry increases. The definative probability that an option will expire ITM is N(d2) of the BS model and is known as the "probability to be called". The other thing to bear in mind when / if using a delta as a probability, is that it's using the option IV as the future stock volatility in the probability calculation. That may or may not be a correct volatility.