Options Pricing

[singh2jatt]

Hi i am very new to Options trading. Would some plz explain to me what the cost of purchasing opstions are and is there a formula to work out the cost of a transaction.

I know finial line depends on the broker. Could you also recomend a gd broker.

 

[abottoml]

For options pricing, start here:
Understanding Option Pricing

An excellent broker for beginners with top notch client software:
http://www.thinkorswim.com

They have an affiliated site which is great for starting out with options strategies:
RED Option | Welcome

 

[arabianights]

Google Black-Scholes

Then get Options, Futures and Other Dervivateves by John Hull and Dynamic Hedging by Nicholas Taleb.

Then, and then only, get Misbehaviour of Markets by Mandelbrot.

After reading all three, come back and bump this thread

 

[Rhody Trader]

Hi i am very new to Options trading. Would some plz explain to me what the cost of purchasing opstions are and is there a formula to work out the cost of a transaction.

I know finial line depends on the broker. Could you also recomend a gd broker.

The cost of purchasing an option is determined by taking the offer (or ask) price quoted and multiplying that by 100 (if you're talking stocks - 1 option = 100 shares of stock) then adding in your broker commissions. Do not assume that the last traded price is the same as where the current market is being quoted.

 

[abottoml]

arabianights wrote:
> Then, and then only, get Misbehaviour of Markets by Mandelbrot.

In this book, would I be right in thinking that Mandelbrot contends that reading price patterns using technical analysis is one of his "ten Heresies of finance"? i.e. He believes that the conventional price patterns used by technical analysts are more a product of chance than anything else.

Anyone care to comment?

 

[blancspa]

arabianights wrote:
> Then, and then only, get Misbehaviour of Markets by Mandelbrot.

In this book, would I be right in thinking that Mandelbrot contends that reading price patterns using technical analysis is one of his "ten Heresies of finance"? i.e. He believes that the conventional price patterns used by technical analysts are more a product of chance than anything else.

Anyone care to comment?

-------------------------------------------

not sure about that
He says that: "Forecasting prices may be perilous", how would you expect from respected professor from Yale to expose himself directly to people who think that technical analysis is a "palm reading".

However, in the other parts of the book he assures you that historical price is embedded in present price, but the patterns are much diffrent than just the candles you see.
It is something to do with chaos theory, ,fractals and geometry (maths), which I guess are recently under scrunity of scholars around the world.

Would you trade on patterns formed by particles of water?
I guess you would. Do you know what I am talking about?

regards

 

[abottoml]

blancspa wrote:
> Would you trade on patterns formed by particles of water?
> I guess you would. Do you know what I am talking about?

The classical approach for the average retail trader is to look for a quasi-repeating pattern in price action which generates an entry signal and an exit signal in the vain hope of generating better-than-average returns. So yes, "patterns formed by particles of water", or other derivations of that theme, may in fact fit the bill for some types of traders. However, the "curve fitting" dangers of backtested trading systems which are based purely on historical price action bothers me, no matter how much fancy pants mathematics is employed.

Personally, being a net seller of options makes sense as theta decay is the only thing in the financial markets which is guaranteed. Then all you need is some very simple technical analysis to ID likely overbought/oversold conditions and the appropriate stops.

 

[blancspa]

I am looking forward to learn option trading strategies
I have taken a look on volatility strategies so far, and will take a look at stress testing later I guess.
And would rather consider myself as an options trader rather than technical analyst in the future (I sould explore my views on the markets that way maybe?)

 

[zafrian]

TOS is the way to go..

I am looking forward to learn option trading strategies
I have taken a look on volatility strategies so far, and will take a look at stress testing later I guess.
And would rather consider myself as an options trader rather than technical analyst in the future (I sould explore my views on the markets that way maybe?)

I Highly recommend Think or Swim.

As someone who trades options for a living, I cant imagine trading options without them.

There platform is light years ahead anyone else.

Also recommend you study theta trading - I only write covered options.

Iron Condors/ Verticals/ Calenders etc

I have been doing extremely well over the past year - even with all this volatilty (Which is great for us option traders really).

PM if you need any help.