Questioning the meaning of Delta

Discussion in 'Options' started by thecoder, Aug 9, 2020.

  1. thecoder

    thecoder

    Yes, not equal payouts. in BSM, like I'm saying all the time.
    But in a fair pricing model both should give the same payout, ie. payout for Put at -1SD should be equal to payout for Call at +1SD.

    In lognormal calculations you never can get such values below zero. So, I wonder how you got the -11.34.
    And how many days for a year does your option pricing engine use?
    Can you verify your data with the calculator here: http://www.option-price.com/index.php
    That calculator uses Year = 365 days (see the About page there).
     
    #31     Aug 13, 2020
  2. Negative - $11.34 is a 1 SD move at 1,000% ATM IV for the underlying stock or future if the underlying price could go below zero (normal price distribution).
     
    #32     Aug 13, 2020
  3. thecoder

    thecoder

    Sorry, but this is mathematically impossible with lognormal calculations.
    And stock prices cannot go below zero.
    So, it doesn't make any sense to continue this specific calculation any further.
     
    #33     Aug 13, 2020
  4. Atikon

    Atikon

    Lookup Oil going negative
     
    #34     Aug 13, 2020
    VolSkewTrader likes this.
  5. Exactly. That's the whole point. Puts cannot have equal payout to calls because the stock can't go below zero. Put prices are capped, while call prices can theoretically go to infinity.
     
    #35     Aug 13, 2020
  6. thecoder

    thecoder

    I wonder if one can make use of that imbalance in option strategies...? :)
    It says to me: never ever buy Puts anymore as the payout is miserable compared to the payout of Calls :).
     
    #36     Aug 13, 2020

  7. The only way to find out is to try your new delta and pricing model in the real world. Maybe start out with some backtesting, simulation or paper trading, and then on some actual trades in some targeted stocks.
     
    #37     Aug 13, 2020
  8. Yeah, just buy calls and sell puts. Guaranteed money machine! :strong:
     
    #38     Aug 13, 2020
    thecoder likes this.
  9. thecoder

    thecoder

    You better should read more carefully as I mean making use of the seen imbalance in the current option pricing model, ie. the Black-Scholes-Merton (BSM) model. My said MyDelta is at the moment interesting just for probability comparisons, nothing more, and an own option pricing model I don't have (yet).
     
    #39     Aug 13, 2020
  10. thecoder

    thecoder

    #40     Aug 13, 2020