How does an average investor find inefficiencies in option pricing?
Posted by admin in Finance Saturday, 7 May 2011 03:12 2 Comments
I would like to buy calls on a solid stock with a good earnings track record. How do I find calls that are attractively priced?
Based on a derivative course I’ve taken in university, the answer is, it’s extremely hard. In order to find an arbitrage opportunity, things that one would need to know would include the exercise date of the option, whether the option is an American versus an European option (the nature of the option has nothing to do with the geographical name), the probability that the market will go bear or bull in the time period, and so on and so forth.
Some brokers and analysts print reports for options that are in the money. I can find them both with scottrade and ameritrade accounts.