/biz/ - Business & Finance

>>15606626
> Black Sholes
No, I'm probably one of the few people in the world who doesn't trust Black Sholes. This is for a few reasons...

1. The formulas were originally based on European style options, and I don't trust how they were converted to support American style.

2. The formula (at least in my opinion) is fuzzy as to it's outcome. Mostly it's used to backward calculate a theoretical volatility.

So while it's good to know what they are (especially if others are trading based on them), I've never found them to be useful.

> what excel routines
Here's an example of how I look at things. I forget the exact date or which stock, but it doesn't matter. Basically I go to an options page (on etrade in my case), pick an expiration date, drag and copy all of the data, and then push a button in excel which reads/translates/populates.

The big thing this does is to calculate the break-even prices for calls and puts of different strike prices.

A mistake I made when I first started was to look at a stock at, for example, $20, think it's going to go to $25, and then buy a $25 call. This was a mistake because when you start looking at break even (also taking into account the round trip commissions), many times your most profitable options purchase would be in an entirely different strike.

In the example I show, look at the break even for the calls (left side) between 247.50 and 249. In that case, any of them have the same breakeven, though some would cost you almost $2000 less.