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I Needed Money, So I Started Options-Hacking | by Quant Galore | Jan, 2023 | #hacking | #cybersecurity | #infosec | #comptia | #pentest | #hacker


Photo by Nicholas Cappello on Unsplash

Background

  1. Find a suitable stock. We will take a stock which is undergoing a volatile period. This can be found on earnings days, corporate actions(stock-split, merger, etc.), and even on just volatile days where the market is having a strong reaction to big news.
  2. Only look at options that expire around 30 days. 30-day options are the best for capturing these errors because they’re sensitive enough to actually profit with small price moves, but they have enough time-value to lose very little if the trade goes wrong.
  3. Use Options-Quant to price the options on the chain. We price the options chain until we get a big enough difference between the Options-Quant price and the market price.
  4. Put on the trade and wait for it to converge to/near the Options-Quant price.

The Trade

Coinbase Stock, 01/10/2023, 01:36 PM (CST)
  • Model: MertonJumpDiff; Jump-Diffusion pricing model, arguably the most accurate option pricing model.
  • Price: The price of the underlying stock
  • Interest Rate: Risk-free rate of equivalent time-bond, in this case, the 4-week treasury bill at ~4.20%
  • Gamma: Gamma of the option as shown by the broker
  • Standard Deviation: Implied volatility as quoted by the broker

Final Thoughts

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