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Strategies & Market Trends : Option Spreads, Credit my Debit -- Ignore unavailable to you. Want to Upgrade?

To: umbro who wrote (1563)	8/1/2000 2:06:19 PM
From: KFE	Read Replies (1) \| Respond to of 2317

Umbro, Do you use an options modeling program? For the type of option trading that I am doing right now I can estimate in my head theoretical values that are close enough on the underlyings that I trade on a regular basis. All pricing models have some deficiencies and as long as you are aware of those limitations any of the standard models can be used. Black-Scholes is the one most used and probably the model used by the web sites that give theoretical option values. This model may prove to be inaccurate if there is a probability of early exercise or on long term options such as LEAPS. You should know how to calculate option values by hand so any web site that you may use can be checked for accuracy. There are significant differences in the values at various web sites which can usually be traced to the way they calculate IV and how often they update the values. No matter which pricing model you select it should not be used for determining theoretical value but should be used to determine which options are mispriced relative to each other under the same model. I don't believe that professional option software is necessary or very useful for a retail option trader. Option market makers use software for risk and position management and fair-value sheets. Regards, Ken