/biz/ - Business & Finance

>>57956868
>>57956033
>>57956082
Options are a contract to buy or sell 100 shares at a specific price, with an expiry date on the contract. There are three inputs that determine the fair market value of a contact being: strike price, expiry date, and volatility of the underlying stock. Tickers that are more volatile/uncertain have a higher IV (implied volatility) on their contracts than a more consistent one. Likewise, a long-dated contract will have more premium associated with it, because there is more time for the volatility to do its job and move up and down.

Stocks do not move randomly, but can be roughly approximated by a stochastic process (eg random movements up and down) for math purposes. Flip a coin, if heads +1, if tails -1. That is also a stochastic process. But over time, the values will "average out" and tend towards a normal distribution; values will cluster around the middle with a few outliers the further out you go. Using picrel as an example, we can project where we expect SPY to go based on its ATR (average true range, a measure of volatility) using sqrt(N) x ATR.

Why is this useful? Using standard deviations, there is a handy thing called the 68-95-99.7 rule. Within a band of one stdev (half up and half down) 68% of the results occur! If you go out to two stdevs, 95% of the outcomes fall in that band, and so on. But MOST of the time stocks close within that one stdev band. If you were to buy a straddle (call and put on the ATM strike), look at the breakevens - these will tell you where the market is "pricing in" the boundary of where the stock will move by that date. It isn't always correct (68% of the time it is) so if you buy something beyond that, it is almost impossible to make money and you become a perpetual gambler. But if you try to buy something inside that region, the market is efficient and the premiums are so high, you won't make money even if you're right.

1/4

>>57916840
Most professional options traders don't even use stocks, except for hedging purposes. It's a fun math-based rabbit hole.

>>57772571
>xlf
>kre
>jpm
>iwm
There's you short. Don't forget to buy the dip this time.

>>57715913
Take the tax hit faggot.

>>57593696
On nvda?

>>57556475
If it expires today your fucked and have to take the 30 day vacation, if further expiration just hold for tuesday.

>>49639307
>take the trade?
it couldn't be that bad