By Derek Moore
Derek Moore and Jay Pestrichelli, CEO of ZEGA Financial, discussed the fallout in the markets during Jerome Powell’s press conference post Fed decision. Then, they talk about high yield spreads and current interest rates across relative fixed income like investment grade, high yield, and treasuries. Finally, they explore how options are priced and which options are considered expensive or cheap vs one another. It might surprise you to take a step back looking at the per day costs. How options are priced using various inputs like implied volatility, interest rates, and time value. How Warren Buffett and Charlie Munger at Berkshire Hathaway have used options. Charlie Munger says Black Scholes is useless to price longer term options. Finally, some recommendations.
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- The Federal Reserve has no action, but rates move higher.
- Rising long end of the yield curve
- Does the bond market finally believe the fed?
- Jerome Powell post press conference market selloff
- When all the high yield is due to be refinanced in the debt maturity wall.
- Looking at 0 DTE option with a half hour left compared to 3-day options.
- Comparing 0 DTE options all the way out to 5year+ options prices
- What is the per day cost of an option?
- Comparing longer vs shorter-term options from a cheap vs expensive standpoint
- How implied volatility currently is higher in much longer options.
- What implied volatility says about 1 standard deviation expectations for price?
- Cost of carry and interest rates in the pricing of options
- Constructing hypothetical option trades holding treasuries with long term calls
- Is Charlie Munger right that Black Scholes mispriced long term options?
- ISDA agreement Big Short Brownville Capital talking about mispriced long-term options.
- Warren Buffett talks about selling very long-term options to get paid to have an option
Mentioned in this Episode:
Jay Pestrichelli’s book Buy and Hedge
Derek’s new book on public speaking Effortless Public Speaking
Derek Moore’s book Broken Pie Chart