Good point. Unless probability move is zero any thing is possible and perhaps I was unlucky. Regards,
You are right. Actually I did own GOOG for many years and the trade was a covered call thinking I could make some "extra profit". I did make some extra with prior covered calls but did not expect the pop in GOOG. What is a steep smirk? Much higher IV for OTM put? Regards,
I'm glad you see it that way now. What you have is an implied distribution of prices (by the implied volatility), in reality there are no "probabilities" in the price itself. Just because the 1 sigma move is 20 points doesn't mean that is how the underlying is going to move. It is just a parameter of the distribution
All of this stuff is available online repeated so many times it is not worth repeating it again. Educate yourself. http://www.google.com
From the 1st page results: https://www.linkedin.com/pulse/9-serious-flaws-black-scholes-pricing-model-michael-thomsett http://asianbankingandfinance.net/t...aws-black-scholes-model-most-people-dont-know http://pages.stern.nyu.edu/~churvich/Forecasting/Handouts/Scholes.pdf https://www.math.unl.edu/~sdunbar1/...sons/BlackScholes/Limitations/limitations.xml http://fskrealityguide.blogspot.com.au/2008/02/black-scholes-formula-is-wrong-part-112.html (Total 12 parts)
Thank you, I just finished reading the Stern NYU paper. Very helpful in explaining in simple terms IV vs strike and time. I should start taking classes in finance.
OddTrader, I quickly scanned through all the links. They are very helpful especially the last 3. I will read through them more carefully in the next few days. Appreciate your help. My thought so far is that everyone knows BSM is flawed yet the brokerages are still quoting and using BSM representations. Those that are able to exploit it by knowing a better model should come out ahead? Regards,
OddTrader, I read through all of them. The last one is really good, gave me a lot of foods for thought. Thank you very much!
Straight from the Horse's mouth (Fisher Black). I posted his paper, here: http://www.elitetrader.com/et/index...s-implied-volatility-tree.91457/#post-1426006 like, 9 years ago.