Extremely low volatility: stock moves $.50 per day

 
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  • Covered call outperforms ~85% of the time
  • You sold the 103 call at $.69…you expect to make $.60 of probability-weighted excess return since the stock only moves $.50 per day instead of $1
  • This is confirmed by our binomial tree model where we compute option prices arithmetically. If the stock only moves $.50 per day the 103 call is worth $.09
 
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