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The Skinny On Options Math

Exp, Geometric Mean, and The Mid Price

The Skinny On Options Math

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

A common price that we use when trading options is the mid price of the option. Traditionally, this is the price that is halfway between the bid price and the ask price. However, simply taking the average of these two prices may not be completely accurate.

Today, Tom Sosnoff and Tony Battista are joined by Jacob Perlman as he explains the math behind the calculating the mid price. Jacob explains that instead of using the average of two prices, we should be using the geometric mean. This is formed by multiplying the bid and ask price together and then taking the square root. This will give you a much more accurate "fair" price of the option!

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