The need for a trading Model.

[John Tila]

It is possible to trade options without any valuation model. For example, traders might buy a call option because they think the underlying will rally further past the strike than the price they have paid. This is the simplest, most direct use of options. At a level of complexity only slightly greater than this we can trade volatility without a model. Traders might sell a straddle because they think the underlying will expire closer to the strike than the value of the straddle. There are an enormous number of option positions like this where traders can attempt to profit from their opinion of the future distribution of the underlying. However, if we want to express an opinion based on the behavior of the underlying before expiration, we will need a model.