i have done a lot of reading and research on options in the last couple of weeks. trying to find ways of determining fair value. of course the easiest part of it is intrinsic value, if any. the current difference between the strike and underlyer. next easiest(in theory) is time value. for fairly short dated options and ultralow interest rates, it is a small and relatively constant number until you get real close to expiration. the worst factor to calculate is market demand for a particular strike and expiry. for the purists, supply might well be infinite.

the only way to gauge demand is the mismatch between the volatility of the underlying shares and the volatility backed out of some model and the current option price. the implied volatility. in general, every option pricing model i have come across results in a fair value that is higher for higher volatilities. the headache comes in getting live information for the implied number. TD gives me an overview, sort of, using numbers that have questionable sources. Trade King, which styles itself an option house, gets better numbers, but only one option at a time. still too much clicking.. after finding a site with much batter data, a whole chain at once, i started the experiment.

AGNC near the money puts and calls for the next two months have an implied volatility much lower than the historical share's volatility., suggesting that they are under-priced. GE for example, is the exact opposite, suggesting over-priced.

so i bought some AGNC May 32's when their implied volatility was 14% versus the historical volatility of 21-ish. goona see if it makes any difference.