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The Skinny On Options Math

Options pricing models all revolve around probability theory. Though the math is done for you by your trading platform, we believe that understanding the number crunching behind the scenes will jump-start your trading. Join us as we show you how it's done.

Local Volatility
Sep 15, 2021

Jacob joins Tom and Tony to explore the least presumptive adjustment to Black-Scholes that can account for its flaws: the local volatility model.

Effects of Expiration
Sep 8, 2021

Jacob joins Tom and Tony to look at a specific example of options affecting underlyings themselves, and the oscillations of volatility around expiration dates that accompany this phenomenon.

Kelly with Uncertainty
Sep 1, 2021

tastytrade examines how a skeptical trader might go about applying the Kelly Criterion and relate it to a perfect application by the Kullback-Leibler divergence or relative entropy.

The Gambler's Fallacy
Aug 25, 2021

If a coin comes up heads several times in a row, it is easy to think that it is “due” for a tails - an error known as the gambler’s fallacy. tastytrade looks at what the law of large numbers actually reveals about this mistake.

VIX: What It is and Isn't
Aug 18, 2021

Today, Jacob joins Tom and Tony to unpack the VIX, both its definition and its relation to volatility.

Option Pricing Methods
Aug 11, 2021

Today, Jacob joins Tom and Tony to go over some of the models and methods that are used to compute theoretical option prices.

Kelly Criterion with Income
Aug 4, 2021

Jacob joins Tom and Tony to look at how we can adjust our trade sizes based on our excess income or needs.

Changing Thetas
Jul 28, 2021

Today, Jacob joins Tom and Tony to look at theta more deeply and explore how we can expect our thetas to change with time, spot price, and volatility.

Entropy and the Market
Jul 21, 2021

Today, Jacob joins Tom and Tony to introduce the concept of "informational entropy" and point its lens at our financial models.

Modeling the Unlikely
Jul 14, 2021

Market modeling is imperfect and can be costly and hard to detect when it comes to assigning probabilities to unlikely events.

Statistical Problems with Financial Gurus
Jul 7, 2021

tastyworks takes a mathematical--and skeptical--look at the claims of "market experts" who profess to be able to predict the future... for a fee.

Changing Probabilities
Jun 30, 2021

tastytrade digests the Black-Scholes formula for probability of a strike break and discovers how we can expect it to change with changes in volatility and spot price.

Implications of Balancing on a Smirk
Jun 23, 2021

Looking at the implied volatilities across different option strikes reveals the volatility smile. Find out how to use this information when trading.

Unpacking the Black-Scholes Formula
Jun 16, 2021

Jacob joins Tom and Tony to try to break down the Black-Scholes formula into digestible parts.

Inferring from Brownian Bridges
Jun 9, 2021

tastytrade explains finer points of the Black-Scholese model and how it relates to efficient markets and price movement.

Underlyings Hot and Cold
Jun 2, 2021

Jacobs provides a fresh perspective on the role of volatility.

Momentumless Feedback Loops
May 26, 2021

The market contains multiple price movement feedback loops — situations where a movement up or down in an underlying leads to more movement in that direction.

Monty Hall and Nontechnical Pigeons
May 19, 2021

The Monty Hall problem is a well known exercise in probability with an unintuitive solution. Jacob explains how this can be applied to options trading. 

The Geometry of Correlation
May 5, 2021

Discover how trading in a variety of underlyings can allow us to reduce risk without hurting profits.

Delta versus Probability of Profit
Apr 28, 2021

Find out how accurate delta is as an estimate for probability of profit when trading options. 

Mean Reversion
Apr 21, 2021

Find out what mean reversion is when trading stocks, options and futures and learn where we might find it in the market, and where we definitely don’t.

The Kelly Criterion
Apr 14, 2021

tastytrade discusses the Kelly Criterion, which gives a mathematically optimal answer to this question in idealized circumstances, and how we can look to apply it in real world situations.

Quadratic Variation and Pairs Trades
Apr 7, 2021

Find out how "jagged" charts are measured mathematically and how pairs trading can offset risk in rapidly moving underlyings. 

Consequences of No-Arbitrage
Mar 31, 2021

tastytrade discusses the technical meaning of no-arbitrage, how it connects to the risk-neutral measure, and where it leaves market participants.

Time in Times of Low Volatility
Mar 24, 2021

tastytraders know how to trade when volatility is high, but what can we do when it's low?

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