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enzo

Spread, was probably the wrong word, implying a value spread. I am valuing them on historical volatility & current volatility, implied volatility is the future and an outright guess.

Assuming for the example, historical volatility is lower than current volatility, then the ask price for any given option *should* be higher, as all the other greeks key their values from vega [past, present, future] The historical volatility seems to make itself seen in the spread price on the bid.

Therefore the greater the deviation in current volatility from historical volatility, the greater in many [but not all] Option bid/ask spreads. These can [and do] change with tomorrows, or next weeks volatility [future]

Therefore knowns;
*historical volatility
*current volatility

Unknowns;
*future volatility

Can we price future volatility?
Which comes round the houses in a long and roundabout way to the Medical company trade, and the litigation. The future volatility changed quite dramatically with a gap in the shareprice, thus all the greeks changed from the initial values.

This risk, was actually quite elegantly managed via the ratio, calendar, vertical + some common hedging. However, quite a mouthful, never mind actually putting it on.

Hence returning to the valuing on the day of purchase [current volatility] as if you overpay, you will always be on the backfoot in regards to future volatility if it does the unexpected, which must be assumed to be 100%.

If on the other hand, current volatility is underpriced, or fairly priced, you start on level ground with the MM, and can better manage your risk which = future volatility.

jog on
d998

<blockquote data-quote="ducati916" data-source="post: 102856" data-attributes="member: 2975">enzo&nbsp;Spread, was probably the wrong word, implying a value spread. I am valuing them on historical volatility &amp; current volatility, implied volatility is the future and an outright guess.Assuming for the example, historical volatility is lower than current volatility, then the ask price for any given option *should* be higher, as all the other greeks key their values from vega [past, present, future] The historical volatility seems to make itself seen in the spread price on the bid.Therefore the greater the deviation in current volatility from historical volatility, the greater in many [but not all] Option bid/ask spreads. These can [and do] change with tomorrows, or next weeks volatility [future]Therefore knowns;*historical volatility*current volatilityUnknowns;*future volatilityCan we price future volatility?Which comes round the houses in a long and roundabout way to the Medical company trade, and the litigation. The future volatility changed quite dramatically with a gap in the shareprice, thus all the greeks changed from the initial values.This risk, was actually quite elegantly managed via the ratio, calendar, vertical + some common hedging. However, quite a mouthful, never mind actually putting it on.Hence returning to the valuing on the day of purchase [current volatility] as if you overpay, you will always be on the backfoot in regards to future volatility if it does the unexpected, which must be assumed to be 100%.If on the other hand, current volatility is underpriced, or fairly priced, you start on level ground with the MM, and can better manage your risk which = future volatility.jog ond998</blockquote>

[QUOTE="ducati916, post: 102856, member: 2975"] [B]enzo[/B] Spread, was probably the wrong word, implying a value spread. I am valuing them on historical volatility & current volatility, implied volatility is the future and an outright guess. Assuming for the example, historical volatility is lower than current volatility, then the ask price for any given option *should* be higher, as all the other greeks key their values from vega [past, present, future] The historical volatility seems to make itself seen in the spread price on the bid. Therefore the greater the deviation in current volatility from historical volatility, the greater in many [but not all] Option bid/ask spreads. These can [and do] change with tomorrows, or next weeks volatility [future] Therefore knowns; *historical volatility *current volatility Unknowns; *future volatility Can we price future volatility? Which comes round the houses in a long and roundabout way to the Medical company trade, and the litigation. The future volatility changed quite dramatically with a gap in the shareprice, thus all the greeks changed from the initial values. This risk, was actually quite elegantly managed via the ratio, calendar, vertical + some common hedging. However, quite a mouthful, never mind actually putting it on. Hence returning to the valuing on the day of purchase [current volatility] as if you overpay, you will always be on the backfoot in regards to future volatility if it does the unexpected, which must be assumed to be 100%. If on the other hand, current volatility is underpriced, or fairly priced, you start on level ground with the MM, and can better manage your risk which = future volatility. jog on d998 [/QUOTE]

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