option pricing formula, help

[lorty]

Option call price= Intrinsic value+ ( Reasonable Max Price - Strike price)

where as: Reasonable max price= Future stock P average+ ( (0.66*STdev) + (0.33* 2 Stdev) )


Is this formula Valid if we can find and estimate a future Average and a Future Stdev ???

Thank you in advance

 

[Martinghoul]

Huh? This makes very little sense... How do you define "intrinsic value"?

 

[lorty]

Huh? This makes very little sense... How do you define "intrinsic value"?

intrinsic value = stock price today - call option strike price.

can you please explain why it makes little sense, i would really appreciate the help.

 

[Martinghoul]

Agree with your intrinsic value definition, but with that, wouldn't you agree that your formula is double-counting intrinsic value?

 

[Rhody Trader]

Agree with your intrinsic value definition, but with that, wouldn't you agree that your formula is double-counting intrinsic value?

Plus there's the fact that prices don't form normal distributions, so trying to apply a standard deviation based on a normal distribution (as you are doing) is of no use.

 

[LeveredHedge]

You are double counting the intrinsic value. What you are basically doing is using the 5 stick model. But as was said you are using a normal distribution (not even a log normal one).

See the following link, it has some good approximation rules that you can work with. I am assuming you are trying to find a simple way of estimating implied vol?

http://www.fepress.org/files/math_primer_fe_atm.pdf