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Advanced Trade Poll: Do You Know Black-Scholes? 🤔

Question: Does anyone here know what the Black-Scholes model is in the trading world?

After voting, check below for a brief explanation! 👇

Brief Explanation about Black-Scholes:

The Black-Scholes model is a mathematical formula used to estimate the theoretical price of options (contracts that give the right, but not the obligation, to buy or sell an asset at a specific price on a future date).

In simple terms, it considers several factors to calculate this fair price, including:

Underlying Asset Price: The current price of the asset on which the option is based (for example, a stock or cryptocurrency).

Strike Price: The price at which the asset can be bought or sold.

Time to Expiration: The period until the option contract's expiration date.

Risk-Free Interest Rate: The return rate of a risk-free investment (usually government bonds).

Volatility: The measure of the expected variation in the price of the underlying asset.

Importance in Trading:

Traders and investors use the Black-Scholes model to:

Assess whether options are overvalued or undervalued.

Develop trading strategies with options.

Manage risk in portfolios with options.

Note: Despite its historical and theoretical importance, the model has limitations and simplifications of market reality.

What do you think? Have you used or heard about Black-Scholes? Share in the comments!

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