Black and Scholes

[cristio]

Hello,

I have a question about the black and scholes model.Is it low risk.And how much ROI on your capital can you achieve with it?Can 30-40% be done or is that beeing to optimistic.
Thank you

 

[tomorton]

ROI as high as this seems unlikely for a private trader with limited capital, as system depends on hedging, i.e. 2 positions per trade, with consequent increase in costs.

 

[marsman]

Just do 2 (or more) calculations with an options calculator, for example vary just the spot of the underlying by 10% say after 3 days, and compare the premiums... ie. calculate the PL or PL%...

With highly volatile titles 500% or even more is well possible. It depends highly on the params: the shorter the timeframe the (big) change occurs the higher the profit... And if also volatility (HV, IV) rises in the same timeframe, then the better...
The longer it takes for the big change to occur the less the profit, because of the time-decay of the option...

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