yes, but only if we created a synthetic replicating portfolio. not because you can actually exercise the option early (obviously since we’re talking about a european option here)
Captain Windjammer Wrote: ------------------------------------------------------- > I am not going to spend any more time on this, but > with all due respect I’ve been left with the > impression so far that a few posters in this > thread have absolutely no idea what they are > talking about. Maybe I’m wrong; I guess I’ve been > that wrong before, though rarely. just curious what you dont agree with?
IheartMath Wrote: ------------------------------------------------------- > yes, but only if we created a synthetic > replicating portfolio. not because you can > actually exercise the option early (obviously > since we’re talking about a european option here) yeah thats fine. all i’m saying is that this arbitrage through put-call parity will keep the delta in check. obviously assuming that these options actually traded, which they never would as options with t=2 barely have any activity.
yeah… we’re on the same page mattlikesanalysis… unfortunately for me im too textbook in my explanations im really curious what captain windjammer thinks… lol
As I said I’m going to quit this thread, but the notion that the price of any option with 70 years to expiration would ever change 1-for-1 (or close to it) with the price of the underlying seems intuitively preposterous to me, because of the extremely long time horizon and the enormous resulting uncertainty.
oh yeah we agreed that B-S would be an unreasonable model, but have nothing else to really go off of i guess… and that delta is closer to 0 for a dividend paying stock.
Again with all due respect I have no idea what you mean.
MORE IMPORTANTLY, how can we personally profit from call options expiring in like 30 years? We can’t. OTC contracts are out of the question because none of us are Warren Buffett (he would have started a post tying in bridge and sexual perversion by now). Can we refocus our equations to something more tangible? Matt, what’s your take on in-the-money HOG options, two-month expiry? I value your opinions. What about the general competitive strategy of the company? I know there are issues with the whole demographic thing, but Porter stopped by and told me they have good brand recognition, which is apparently an important barrier to entry. See, there’s this chick I’m dating and her and her friends are really into the company’s products. Everyone else: do you think Porter is an albino? I’m personally leaning toward yes.
Captain Windjammer Wrote: ------------------------------------------------------- > As I said I’m going to quit this thread, but the > notion that the price of any option with 70 years > to expiration would ever change 1-for-1 (or close > to it) with the price of the underlying seems > intuitively preposterous to me, because of the > extremely long time horizon and the enormous > resulting uncertainty. there is little uncertainty that there will be upside from the current strike price which is ATM. do you really think that with inflation and hopefully a higher than risk-free return, that there is any chance that the spot will be the same price or lower in 70 years, especially when there are no dividends? we’re talking about putting your money into the american economy for 70 years and experiencing no nominal return and taking a heavy loss, assuming we get inflation over the 70 years. the only scenario where this would actually occur is if the entire world experienced Japan like depression and their depression went on for 70 years. i wouldn’t be too concerned about my 70 year option when asset prices haven’t increased for 70 years. the bottom line is that with an 8% LT nominal return expected, no dividends and 70 years, the EV of the SPY is 21,800 vs. 100 today. that is why it must move hand in hand with the underlying b/c if it didn’t you could buy the option and experience incredibly inflated returns while sharing mostly the same risk of a super-doomsday the SPY is at $10 or nonexistant in 70 years. with no additional downside risk, with the option ATM, why give the option holder any additional return for not accepting any conceivable additional risk. thus why buying an option like this is almost identical to buying the stock itself.
TheAliMan Wrote: ------------------------------------------------------- > Matt, what’s your take on in-the-money HOG > options, two-month expiry? I value your opinions. > What about the general competitive strategy of the > company? aliman, you and HOG… your whole scenario, from that other thread, is hilarious
TheAliMan Wrote: ------------------------------------------------------- > MORE IMPORTANTLY, how can we personally profit > from call options expiring in like 30 years? We > can’t. OTC contracts are out of the question > because none of us are Warren Buffett (he would > have started a post tying in bridge and sexual > perversion by now). Can we refocus our equations > to something more tangible? > > Matt, what’s your take on in-the-money HOG > options, two-month expiry? I value your opinions. > What about the general competitive strategy of the > company? I know there are issues with the whole > demographic thing, but Porter stopped by and told > me they have good brand recognition, which is > apparently an important barrier to entry. See, > there’s this chick I’m dating and her and her > friends are really into the company’s products. > Everyone else: do you think Porter is an albino? > I’m personally leaning toward yes. haha. two things. first: i don’t do in the money options. and second: i wouldn’t touch automotive with a 10 foot pole right now. the govies could come out with the HLGACA$10TRP (Hey Lets Give Auto Companies A $10 Trillion Relief Program) anytime and i wouldn’t want to be involved either way.
The Delta of my attention span dropped to 0 by page 2…ba-dum.
Matt, if you are talking about an individual stock (or many other instruments) as the underlying, there is a very good chance the underlying price will be lower than it is now in 70 years. If you are talking about the US market generally that’s somewhat different, but think about 70-year options written on, say, the Argentine or Russian market in 1909. And wouldn’t the price of the option reflect assumptions about inflation and the risk free rate (which may also be wrong of course) on day 1? Now I am really going to stop.
Captain Windjammer Wrote: ------------------------------------------------------- > Matt, if you are talking about an individual stock > (or many other instruments) as the underlying, > there is a very good chance the underlying price > will be lower than it is now in 70 years. If you > are talking about the US market generally that’s > somewhat different, but think about 70-year > options written on, say, the Argentine or Russian > market in 1909. And wouldn’t the price of the > option reflect assumptions about inflation and the > risk free rate (which may also be wrong of course) > on day 1? > > Now I am really going to stop. Can you please tell us what you think the answer might be? (Assuming a regular non-dividend paying stock) Are you aboard the ZB and JLTD bandwagon: 0 - 0.5 or Matt and IhM bandwagon: 0.9 - 1
to clarify… Matt and IhM, agree that it is close to 1 for a non dividend paying stock, but close to 0 for a dividend paying stock… jeez how many times do i have to clarify.
IheartMath Wrote: ------------------------------------------------------- > to clarify… Matt and IhM, agree that it is close > to 1 for a non dividend paying stock, but close to > 0 for a dividend paying stock… > > jeez how many times do i have to clarify. read my post i said ‘assuming non dividend paying stock’ because usually when someone is talking about a certain stock they don’t assume its dividend paying value stock
sorry i jumped the gun on that one… getting defensive.
I don’t have a specific answer, but I wouldn’t think it would be very high. The notion that paying dividends or not would take it from near 1 to near 0 or vice versa also doesn’t make sense to me - how many times might a company change its dividend policy in 70 years?
although i see your point, you have to come up with some kind of long term assumption… an average of sorts to make some kind of estimate… we obviously dont know what would happen in the future…
Captain Windjammer Wrote: ------------------------------------------------------- how many times might a company change its > dividend policy in 70 years? perhaps many times. also your company may not even exist in 70 yrs. also the risk-free rate will not stay constant and flat, and the volatility of the company will not remain constant. so you just established that B-S is an awful model for long-term options which we all agreed upon at the start i think apart from this, everything iheartmath says about the delta is right from B-S perspective which of course may clash with your intuition or common sense