Expected return of call and put?

[Ericeric]

Expected return of stock is positive. And it is negative for gambling.
What do you think about options?

Postive or negative?

[JDav]

Since an option's price can be expressed as an expected value with respect to the risk-neutral probability, its return (including the original cost) should be zero.

[Ericeric]

But in the real world.

When demand of options is larger:

General publics are willing to buy a "overpriced" call because they want to earn more when the stock price increase.

When supply of options is larger:

Issuer stop to sell option, they will not sold "underpriced" options.

Therefore, it is reasonable that the price of options is larger than it's value.

Also, there is difference between ask price and bid price.

Is it that true??

[JDav]

Honest opinion? No. Options are too easy to arbitrage, and there are too many highly paid people whose job is to do exactly that.

[graupner]

But in the real world.

When demand of options is larger:

General publics are willing to buy a "overpriced" call because they want to earn more when the stock price increase.

When supply of options is larger:

Issuer stop to sell option, they will not sold "underpriced" options.

Therefore, it is reasonable that the price of options is larger than it's value.

Also, there is difference between ask price and bid price.

Is it that true??

Just like he said, if you ever see that happenning, you could do some lucrative arbitrage!! :smiloe: