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#1
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there are two new business props at bodog that caught my eye.
Bet On: Will Apple Inc.'s stock (AAPL) close with a value of 110 or more in 2006? yes -110 no -130 and Bet On: Will Google Inc.'s stock (GOOG) close with a value of 540 or more in 2006? yes -120 no -120 i think the AAPL is a clear "no." it's true that the stock is on a heater... yes, but asking it to increase by 22% in a little over a month is asking too much. the GOOG prop is more interesting to me, i feel like i should either be betting "NO" or buying call options like crazy, and i don't know which i should be doing. any thoughts? |
#2
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i like the apple one too
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#3
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too bad the max win on the apple bet is $50. i was ready to bridge jump my bodog bankroll on that prop. free money!
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#4
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Thanks for the heads up.
I think the most comparable options trade to this prop bet would be selling calls, which is basically selling someone else the right to buy a stock from you at a given price at a future date. To determine if you were getting a good value, you could compare the two. For instance, the current market price of the Dec 06 $540 GOOG calls is $3.70. To "win" $50, you would have to sell 14 of them (14 * $3.70 = $51.80). For the Dec 06 $540 calls, selling 14 $540 calls at 3.70 each: Win $51.80 if the stock finishes at <=$540 (14 * 3.70) Lose $18.20 if the stock finishes at $545 (+$51.80 - (14 * (545-540)) Lose $88.20 if the stock finishes at $550 (+$51.80 - (14 * (550-540)) Lose $158.20 if the stock finishes at $555... etc... For the prop bet, betting $60 to win $50: Win $50 if the stock finishes <$540 Lose $60 if the stock finishes >=$540 I'm with you on the AAPL bet, but I think I will pass on the GOOG bet. |
#5
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I'm in for 65 to win 50. I <3 bodog props.
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#6
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AAPL's implied vol in the options marketplace right now is less than 40
40% * $90 * sqrt (25 trading days / 250 trading days) = $11.4 That puts this move $19.7/$11.4 = 1.72 standard deviations. That corresponds to a 95% chance, to break even we need 57%. Easy money. (The percentage is slightly less than that because it's any trading day in 2006, not the end, but there's still tons of value. If you want to see it another way, those $110 calls are selling for less than $0.05. |
#7
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By the same argument, Google's is about 52
52% * $500 * sqrt (25/250) = 83.7 31/83.7 = 0.37 SD ~ 64%. Still value at -120, but I'll pass. |
#8
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[ QUOTE ]
AAPL's implied vol in the options marketplace right now is less than 40 40% * $90 * sqrt (25 trading days / 250 trading days) = $11.4 [/ QUOTE ] You need to count calendar days, not trading days. In this case the number of days between now and December 29th, the last trading day of 2006. All options pricing models use calendar days because you pay interest on weekends. Also, things can happen on weekends even with the markets closed. Probably won't throw off your calculations much. |
#9
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[ QUOTE ]
[ QUOTE ] AAPL's implied vol in the options marketplace right now is less than 40 40% * $90 * sqrt (25 trading days / 250 trading days) = $11.4 [/ QUOTE ] You need to count calendar days, not trading days. In this case the number of days between now and December 29th, the last trading day of 2006. All options pricing models use calendar days because you pay interest on weekends. Also, things can happen on weekends even with the markets closed. Probably won't throw off your calculations much. [/ QUOTE ] Stock prices can't move on days that they don't trade. Therefore they cannot have implied volatility. There may be circles that do it otherwise, but every options pricing class I've been in (working on Wall St) has used trading days for vol and calendar days for interest. |
#10
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[ QUOTE ]
I think the most comparable options trade to this prop bet would be selling calls, which is basically selling someone else the right to buy a stock from you at a given price at a future date. [/ QUOTE ] Not really a good analogy because your risk is unlimited when writing (selling) options. You have defined risk in this case, like when you purchase an option. But your reward is also defined and limited, so it differs from buying an option. [ QUOTE ] The current market price of the Dec 06 $540 GOOG calls is $3.70. To "win" $50, you would have to sell 14 of them (14 * $3.70 = $51.80). [/ QUOTE ] That's $3.70 per share and the standard options contract is 100 shares, so each call is $370, not $3.70. |
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