The Saturday Spread: Using the Markov Property to Find Mispriced Opportunities (PANW, NTES, DKS)
It is inevitable that on any given day, Wall Street will be mispricing the option premium on a publicly traded security. Specifically, the standard Black-Scholes model effectively states the following for debit-based transactions: Assuming the stock moves randomly with constant volatility and no memory, the fair price of a call option is the expected discounted…