Cheap vs Expensive Options | Warren Buffett on Options | Fed Powell Presser

Broken Pie Chart

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.

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:

0DTE Options Analysis| Inflation Coming Back? | Strong US Dollar Impact https://podcasts.apple.com/us/podcast/0dte-options-analysis-inflation-coming-back-strong/id1432836154?i=1000628157831

Warren Buffett and Charlie Munger Berkshire Hathaway meeting discuss using and pricing options https://www.youtube.com/watch?v=SMkpou-YBGw

Implied Volatility Deep Dive | Real Interest Rate Yields | The Big Short | Tesla vs Nvidia

https://podcasts.apple.com/us/podcast/implied-volatility-deep-dive-real-interest-rate-yields/id1432836154?i=1000627400400

GameStop Short Squeeze by the Reddit Wall Street Bets Traders Explained

https://podcasts.apple.com/us/podcast/broken-pie-chart/id1432836154?i=1000507187446

The Big Short Movie and Credit Default Swaps Explained

https://open.spotify.com/episode/6FG0xHkxfhSXEtbJbFbDF6

Margin Call Movie and Understanding Value at Risk https://open.spotify.com/episode/2XJ58KAoQKw2sdC48KHyPp

Recession Predictions Still Wrong? | Synthetic Options | Unemployment Anomalies | Oil Prices Breakout

https://podcasts.apple.com/us/podcast/recession-predictions-still-wrong-synthetic-options/id1432836154?i=1000626691109

0 DTE Options No Problem? | Jay Powell’s Wyoming Speech Points to More Interest Rate Hikes?

https://podcasts.apple.com/us/podcast/0-dte-options-no-problem-jay-powells-wyoming-speech/id1432836154?i=1000625845803

Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt

Derek’s new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag

Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr

Contact Derek [e-mail]

www.zegafinancial.com