When you consider what an option is and how it functions in the equity markets, this speed is mind-bending––and, not incidentally, worrisome. An option is a contract to either buy or sell an asset at a given price. The option itself is purchased, and this creates a market for options as well as for their underlying equities. The seller offers an option called a put and the buyer’s option is called a call. Options have expiration dates after which they are worthless. Between the time when an option is purchased and when it expires, it’s value can fluctuate. This makes the trading of options pretty risky, and an obvious application for any kind of Monte Carlo in Excel software. Monte Carlo simulation is just one of a number of statistical analysis techniques that are used to value options, but it is the one used by the high-speed entrepreneurs.
The drawback to this mind-boggling speed is that it’s mind boggling. If they want to keep up, investors may not have even a moment to call or put.