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How Do Options Prices Get Determined?

When there is some news, do traders in the pits (when there were pits) think about the right vol and then set the option price?

Or does the news make them respond with a price move and then see what vol it corresponds to?

The answer may be different depending on whether the news moves the equity market or the vol market, though even that separation isn’t really clear.

What is the actual interaction between models and prices at the front line? Anyone know the answer from experience?

Published in Models