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Stocks A to Z / Stocks B / Berkshire Hathaway (BRK.A)
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Author: Engr27   😊 😞
Number: of 15051 
Subject: Re: An options strategy
Date: 02/21/2024 9:56 PM
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IF the stock price fluctuations are random, log-normally distributed, AND the options are Black-Scholes priced, AND there is zero friction: no bid-ask spread on options prices, no fees for transactions, THEN the expected return from covered calls is precisely zero!

I think this is about right. But Black-Scholes does not account for valuation. The stock price in the future is just assumed to be today's price plus a log-normal random variable.

If you accept that the today's valuation has some predictive value for the stock price a few months out then you can gain an edge.

And, you don't have to be always right. Just mostly right.
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