HOLLYWOOD STOCK EXCHANGE
THE ENTERTAINMENT MARKET
THE ENTERTAINMENT MARKET
Well!, This is interesting however just by looking at what you wrote seems that is based in some assumptions that may no be there.
a couple of points according to what I understood in the post...
a) First you seems to asume that there is a correlation between the prices of a stock, its opening weekend, the call option price, the put option price and the option strike price.
While it does makes sense and it should be that there is a correlation; in the HSX market all of these numbers seems to be rather independent of each other and respond in some ocassions rather to "time" than actual price of the stock or even expected box office. If there is such relation then it will show at Friday just before halt. It does makes sense and happens that if a put goes up then call goes down and that if a stock price goes down or up then acording to what the strike price it is their options will have some effect. But before that, also happens the "time effect" like how most options both call and puts increase price simultaneoulsy in their first days, or how the price of a stock varies according to whatever news (# theaters, rival stocks) during at least the last 10 days before halt wich means you probably will have to recalculate your assesment quite frequently increasing the chance that comissions may take away possible earnings (by example this week we have a stock that is been up or down around 6 points). Usually the first days of that 10 days to pick a number the price of the stock responds more to expected box office while the last days are more aligned to the movie opening weekend. The strike price of an option is given and while it should have a relation with the opening weekend it depends in the accuracy of the person that came up with it after all according to the error is our profit in options.
Also I did not see this in your post so i do not know if I get this right or not but since all of these values you know at any given time and vary over time, there should be a fixed part which I imagine is K/(2.8 or 2.2) that you mendion and assuming that K will not change (and it will) and that K actually is accurate or close to opening weekend as posible then the inequality will only show that there is an oportunity to make money in the options, the problem still continues to identify which option, call, put or both is overpriced or underpriced. We actually need to know one of them (call or put) to be true to determined the other and possible adjustments and if we knew one then there was not need to do this exercise in the first place.
b) The fixed number of securities that you can buy or whatever are 10,000 (options) and 50,000 (stock) so there is always a posibility even though the multiple combinations that you can do between 0 and those limits that with or without comission you can not correct the exercise for a sure profit in particular if the stock price is really high, Avatar, Hary Potters, etc. So I asume that in this case a user will have to abstain from these oportunities even though the huge disparity that it may hold.
c) if this were the real market with millions of players then most of the variations due to time will not affect much since the shear number of securities and or players will not respond to those, aka (most people are long term investors).
Using options for arbitrage trading: put-call parity Feb 03, 08:06
Wow! That post just gave me a headache. {nm} Feb 03, 08:18
By the way the multiplyer for a non-holiday weekend 2.7 not 2.8 {nm} Feb 03, 08:19
Ha! Fair point. Is kind of complicated. And thanks for catching my 2.7 error. {nm} Feb 03, 08:30
But how do you know which is over-priced and which is under-priced before the adjust? Because if you miscalculate the OW and Feb 03, 09:04
Look at it as two different baskets of securities Feb 03, 09:28
i guess it makes sense in theory. however one could only play 10k of MST in order to be fully covered. {nm} Feb 03, 09:38
It would be less than that, because you have to divide the 10k by the multiplier to really hedge it out... {nm} Feb 03, 09:43
way too complicated for this game Feb 03, 09:45
It ain't my fault I had too much time on my hands this morning! Feb 03, 10:50
Well!, This is interesting however just by looking at what you wrote seems that is based in some assumptions that may no be there. Feb 03, 10:22
None of that matters. This strategy is bulletproof. The only problem is that you just can {nm} Feb 03, 13:18