When talking about great people like Fischer Black and Myron Scholes(Nobel Prize Winner), we have to make ourselves very sure to provide accurate details.
Black Scholes Methodology is first defined as valuation model for stock warrants. We forget the main purpose of options and started trading it as ASSET(Originally
Warrent).
The exact 6 assumptions of the Black-Scholes Model are :
1. Stock pays no dividends.
2. Option can only be exercised upon expiration(Which is Different from American).
3. Market direction cannot be predicted, hence "Random Walk(Efficient Market Hypothesis)."
4. No commissions are charged in the transaction.
5. Interest rates remain constant.
6. Stock returns are normally distributed, thus volatility is constant over time.
So, Are we looking in to the above key points to trade the options? 90% of New Gen traders don't take all these factors in to account.
The Key to Success is Understand the Formation of Option and the Underlying Pricing formula.
Will continue to explain the Greeks in Next post.
Enjoy trading, any questions pl. ping me.
Black Scholes Methodology is first defined as valuation model for stock warrants. We forget the main purpose of options and started trading it as ASSET(Originally
Warrent).
The exact 6 assumptions of the Black-Scholes Model are :
1. Stock pays no dividends.
2. Option can only be exercised upon expiration(Which is Different from American).
3. Market direction cannot be predicted, hence "Random Walk(Efficient Market Hypothesis)."
4. No commissions are charged in the transaction.
5. Interest rates remain constant.
6. Stock returns are normally distributed, thus volatility is constant over time.
So, Are we looking in to the above key points to trade the options? 90% of New Gen traders don't take all these factors in to account.
The Key to Success is Understand the Formation of Option and the Underlying Pricing formula.
Will continue to explain the Greeks in Next post.
Enjoy trading, any questions pl. ping me.