Investment Science has a product called Investment Lab where one is able to push a button and make money through numerous parameters. While 'Investment Lab' itself is not for sale, we can help firms solve issues such as finding optimal prices of financial instruments or build a similar product for your needs. Our firm created a graph in python, which is a general purpose programming language. The python library used was pylab, a graphing library in python. The purpose of this post is not to teach you how to code, but rather how to build interesting products from complex financial instruments in a simple programming language such as python. What we did here was graph out a put option (a put option is a contract giving the owner the right, but not the obligation to sell or sell short a specified amount of an underlying security at a pre-determined price within a specified time frame). For the graph above, we used the black scholes formula (a mathematical model for pricing an options contract. In particular, the model estimates the variation over time of financial instruments. It assumes these instruments (such as stocks or futures) will have a lognormal distribution of prices. Using this assumption and factoring in other important variables, the equation derives the price of a call option).
What is interesting about the graph above is on August 7th, 2020 the near-term price of the put option, that expired on August 7th, is worth more than the other option prices into the future. Simply speaking, when there are no economic events (such as a company merger or a corporate earnings event) one would expect the derivatives price on 08/07/2020 (i.e. today) for the company, Activision Blizzard (Ticker symbol ATVI), to be less than the future option prices. - but it's not!
Now that you understand this post, please go to our next post on Options Trading Arbitrage
What is interesting about the graph above is on August 7th, 2020 the near-term price of the put option, that expired on August 7th, is worth more than the other option prices into the future. Simply speaking, when there are no economic events (such as a company merger or a corporate earnings event) one would expect the derivatives price on 08/07/2020 (i.e. today) for the company, Activision Blizzard (Ticker symbol ATVI), to be less than the future option prices. - but it's not!
Now that you understand this post, please go to our next post on Options Trading Arbitrage
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