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Dom1,
I hope you don't mind my jumping in.
My thinking is that the more variables there
are, the more variables there are with
which you have to compete or beat professionals at. <FONT
face=Arial size=2>Options are a good example of a sophisticated vehicle which
begs for the best state of the art computer and
mathematical models. I was a market maker on the CBOE for 12 years.
I know enough to know that it is very difficult to compete with the floor
professional in options, which is why I now seldom trade options in favor of the
more simplistic futures contracts. Futures represent mostly a binary
decision, will it go up or down, to buy or to sell, whereas options represent a
plethora of variables and required decisions. The greater the number of
variables, the greater the chance that I will make a bad decision or
judgement. So, unless you have a staff of people to run
the computers, do the research, and the latest option
theoretical math model, you are probably gonna get your butt kicked. It is
hard enough to make money in the market via getting the underlying market right
without having to worry about illiquid options causing wide bid - asks, implied
volatility, the history of option valuation, deltas, thetas and the rest of the
Greek alphabet. Bottomline, I am a strong believer in KEEP IT SIMPLE and
options don't fit my KEEP IT SIMPLE model. That's my two cents.
Regards,
Norman
<BLOCKQUOTE
>
----- Original Message -----
<DIV
>From:
dom1_1998
To: <A title=realtraders@xxxxxxxxxxxxxxx
href="">realtraders@xxxxxxxxxxxxxxx
Sent: Thursday, June 12, 2003 11:42
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 areregardless of what the BS model says. Like you said, over
price foryou, under price for me. To avoid this guessing game, I
wonder if the best method is buy/selldeltas of one to mesh with the
underlying.What do you
think?Dominick--- In
realtraders@xxxxxxxxxxxxxxx, "Ira" <mr.ira@xxxx> wrote:> I hope
that your system includes the theoretical price of theoptions and a
realistic way of acquiring the numbers to be used in thevariables in
option pricing. Based upon your reply you are basingyour bid/offer
upon someone else's information, bid/offer. Thegreatest risk outside
of price movement in trading options isvolatility risk. So you had better
have a handle on finding thevolatility of the underlying and being able to
compare it with theimplied volatility of the options. To know
whether the bids andoffers are over or under valued is imperative in
trading options. Onething to remember is that your overvalued options
might be my undervalued option. It is all in the numbers used in the
option pricingvariables. 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 insidebid / offer. I want to ensure that if I raise / lower the
bid / offerthat I do so in such a way the honors the minm price increment
rules.> > Regards,>
Brendan> -----Original
Message-----> From: Ira
[mailto:mr.ira@xxxx]> 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 andhas nothing to
do with you, other then the increments of bid andoffer. There is
also a maximum spread between bid and offer that canbe made in the
crowd. If the bid is $3 then the minimum offer in thecrowd, by a
market maker is $3 and $3.10. That doesn't stop you fromputting in
an offer or bid at $3.00 or $3.10. If you put in your offerat $3.10 you
are competing with market makers and floor brokers thatare holding
offers. It used to be, that if you tell your broker thatyou want
your offer in the book, that book orders were filled beforefloor orders
and they were filled in the order booked. What if thebid/offer in
the crowd was $3.00 at $3.50? You can put a bid or offeranywhere in
the middle in $.10 increments. Whether you would getfilled or not is
another matter, but if your offer was at $3.30 itcould read $3.00 at $3.30
or a market maker could rest upon your offerand offer at $3.20 knowing
that your offer was there if the price ofthe underlying starts to
rise. When you cancel your offer the marketmight very well go back
to $3.00 at $3.50. Your offer was the marketmakers stop loss.
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