@Sig, it's all just a matter of convention the market has agreed upon. I'm evaluating whether an option market w/o Bid/Ask prices is possible by taking the price from the BSM-model. The advantage would be a massive saving on data storage and the distribution of options data (as currently it is a ton of options data), but more importantly I want allow the traders to use freely any strike they want (!). Let's say this is just for a virtual online market game, ie. the market operator needs to distribute as less data as possible to save on servers and traffic bandwidth... I think it is possible, but there is one last minor problem left... W/o Bid/Ask I need something like a sentiment indicator created from the options trade data (which as said shall use BSM and the same IV for all strikes). And that sentiment indicator then will be used to update the IV (which as initially said comes from the HV of the underlying)... That's my current idea... Actually Call has to have its own IV, and also Put has to have its own IV; ie. for each ExpDate there are 2 IVs. The sentiment indicator shall allow higher IVs around upcoming event dates, detected from past trade data (ie. if volume of bought Call options for ExpDate is high then for this ExpDate the Call IV shall be higher than what HV of the underlying would indicate)...
If there is no bid or ask price, then how do we buy or sell the option? I realize that options people are bat-shit crazy, but now that I realize you are the "Fair Put" guy, we all now know you are certifiable.
@Overnight, FYI: FairPut lives! Nothing wrong with it. I suggest you first read the posting till the end before replying, as the answer is exactly out there... This is something brand new, not the same shaet you already know
I think you ignored my point. If a system doesn't allow for different IVs at different points in the curve, but buyers and sellers will only transact at different IVs at different points in the curve (skew), then the system doesn't work. This system, as described, doesn't work for that reason. You can save all the bandwidth you want (another solution in search of a problem at this point) but if it doesn't work because it forces traders to trade at prices they don't agree to trade at and therefore they don't use it, then it's pointless.
Right, and the market quite clearly doesn't agree that IV should be the same at every point on the curve.
As said, each of Call and Put has its own separate IV, ie. in total 2 IVs. You say each strike needs to have its own Bid/Ask as well its own IV.... But then the said requirements aren't realizable, so I needed to find a workaround...