q-fin updates on arXiv.org
Tue, 10 Mar 2020 06:01:45 GMT language
In this article we propose and calculate, under the Black Scholes option
pricing model, a measure of the relative value of a delta- Symmetric Strangle.
The proposed measure accounts for the price of the strangle, relative to the
(present value of the) spread between the two strikes, all expressed, after a
natural re-parameterization, in terms of delta and a volatility parameter. We
show the startling main result that under the standard BS option pricing model,
this measure of relative value is a function of delta only and is independent
of the time to expiry, the price of the underlying security or the prevailing
volatility used in the pricing model. In fact, the simple and intuitively
appealing expression for this measure allows us to study the strangle's exit
strategy and the corresponding optimal choices for values of delta.