Made you look didn’t I. 
So I was looking at the Black-Scholes equation, :22:, and it got me thinking that maybe I could use the cumulative distribution as an indicator of where price MIGHT be in the future, especially in a trending environment. “The terms N(d1), N(d2) are the probabilities of the option expiring in-the-money ,” Wikipedia. :33:
Then I found this article; “Using Options Tools to Trade Foreign-Exchange Spot”, Investopedia. :45:
So anyone have any idea how to go about doing this?
Maybe using gamma to check if the market is trend or range.
Black-Scholes is based on a normal distribution, which it has been repeatedly demonstrated that the market does not follow. Also, B-S assumes equal likelihood of a rise or fall. If the market is in a situation where there is a skew to the likely outcome then options will be mispriced.
Yeah, I figured the normal distribution would be a poor approximation. Any ways, can anyone point to some kind of instruction or paper on options pricing. I solve or at least approximate the heat equation(PDE diffusion equation) on a daily basis, thus my interest in B-S.
Can someone point me in to some free literature on options pricing?
http://people.stern.nyu.edu/adamodar/pdfiles/option.pdf
http://fisher.osu.edu/~fellingham_1/seminar/CRR79.pdf
http://ramanujan.math.trinity.edu/tumath/research/studpapers/s11.pdf
A very interesting one:
Awesome, thank you for all of the links! This will certainly keep me busy today!
No. Regarding information from the options markets, I only use the FX Options Expiry Calendar from Reuters for my spot trading, as those prices tend to act as a magnet if the option is big enough. We had today some larger option expiring at 2230/2200. I don’t trade based on this, but it’s good to know in case something lines up.