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I have been a delta trader. In times when option prices are over valued I
would deal in spreads. Spreads normally reduce the volatility risk to a
negligible amount. A one point bull or bear spread remains at about a
point. Options are a directional tool no matter what you use to trade by,
deltas, gammas or whatever. Ira
----- Original Message -----
From: "dom1_1998" <dominick@xxxxxxx>
To: <realtraders@xxxxxxxxxxxxxxx>
Sent: Thursday, June 12, 2003 8:42 AM
Subject: Re: [RT] Minimum price increment
> On one hand I agree about calculating option prices via the BS method.
> On the other hand I wonder how much of a difference does it really make.
>
> The MM decides the B/A prices so they're going to be what they are
> regardless of what the BS model says. Like you said, over price for
> you, under price for me.
>
> To avoid this guessing game, I wonder if the best method is buy/sell
> deltas of one to mesh with the underlying.
>
> What do you think?
>
> Dominick
>
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> --- In realtraders@xxxxxxxxxxxxxxx, "Ira" <mr.ira@xxxx> wrote:
> > I hope that your system includes the theoretical price of the
> options and a realistic way of acquiring the numbers to be used in the
> variables in option pricing. Based upon your reply you are basing
> your bid/offer upon someone else's information, bid/offer. The
> greatest risk outside of price movement in trading options is
> volatility risk. So you had better have a handle on finding the
> volatility of the underlying and being able to compare it with the
> implied volatility of the options. To know whether the bids and
> offers are over or under valued is imperative in trading options. One
> thing to remember is that your overvalued options might be my under
> valued option. It is all in the numbers used in the option pricing
> variables. Good luck in your search. Ira.
> > ----- Original Message -----
> > From: Brendan B. Boerner
> > To: realtraders@xxxxxxxxxxxxxxx
> > Sent: Thursday, June 12, 2003 7:27 AM
> > Subject: RE: [RT] Minimum price increment
> >
> >
> > Ira, thanks for the explanation.
> >
> > I'm asking because I'm developing a system to remain on the inside
> bid / offer. I want to ensure that if I raise / lower the bid / offer
> that I do so in such a way the honors the minm price increment rules.
> >
> > Regards,
> > Brendan
> > -----Original Message-----
> > From: Ira [mailto:mr.ira@x...]
> > Sent: Thursday, June 12, 2003 9:10 AM
> > To: realtraders@xxxxxxxxxxxxxxx
> > Subject: Re: [RT] Minimum price increment
> >
> >
> > The minimum bid is for market makers standing in the crowd and
> has nothing to do with you, other then the increments of bid and
> offer. There is also a maximum spread between bid and offer that can
> be made in the crowd. If the bid is $3 then the minimum offer in the
> crowd, by a market maker is $3 and $3.10. That doesn't stop you from
> putting in an offer or bid at $3.00 or $3.10. If you put in your offer
> at $3.10 you are competing with market makers and floor brokers that
> are holding offers. It used to be, that if you tell your broker that
> you want your offer in the book, that book orders were filled before
> floor orders and they were filled in the order booked. What if the
> bid/offer in the crowd was $3.00 at $3.50? You can put a bid or offer
> anywhere in the middle in $.10 increments. Whether you would get
> filled or not is another matter, but if your offer was at $3.30 it
> could read $3.00 at $3.30 or a market maker could rest upon your offer
> and offer at $3.20 knowing that your offer was there if the price of
> the underlying starts to rise. When you cancel your offer the market
> might very well go back to $3.00 at $3.50. Your offer was the market
> makers stop loss.
> >
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