macrocephalopod

25/ Why would we go through this rigamarole? Why not deal with prices of options directly? Cuz options prices suck. They're hard to think about. Also, in trading we really care about *changes* in things, not levels. And change in option prices are *really* hard to think about.

26/ Options prices are all over the map. The $TSLA Mar 700 call costs ~$105. Say tomorrow it costs $100. Yes it went down 5% but that's not the most useful way to think about the change in *value* of the option.

27/ What if I want to compare TSLA options to NKLA options? Or Mar options to Jun options? Or the 700 call to the 750 call? There are too many parameters, it's just too complicated to get good intuitions about. Intuitions matter.

28/ The purpose of BS and BS_inv are to *renormalize* prices of options into a measuring stick that we *can* get some intuitions about. That's all "implied vol" is: a renormalization. Physicists rejoice!

One of the best explanation on IV. My goal is to write a book or two on econophysics: Standard Model of Derivatives Market and Quantum Finance. Ornstein–Uhlenbeck (European options) and Weiner-Bachelier (American) are similar to Lagrange and Hamilton-Jacobi conceptual approach.

Out of curiosity, can you do a thread on Vanna/Charm and Dark Pool/OTC impact on Options? Great thread btw. Your approach to discuss it from intuitive perspective is amazing. I'm an intuitive person so it helps.

Check out my Options 201 thread where I talk about Greeks.

My bad just read. May I request a thread on the impact of Dark Pools and OTC on Options price? I keep seeing anomalies in my risk model that I assume could be caused by incomplete order flows data due to hidden Dark Pools and OTC flows. Any reading recommendations on those topic?