homie

ravali your calcs assume that the option holder has committed to the position. But these are all valuations where you are assessing the probability of a price rise vs price drop.

For ex if price of gas shot up 5% on a $2 today and would drop the next day by 5%, my today's and next day's prices would be $2.10 and $1.99 resp.

OTH, if I think the prob of the %5 rise in gas price today is 60% and the 5% drop is 40%, the expected price of gas for tomorrow would be .6*2*1.05[1.26]+.4*2/1.05[.76]=2.02.

hth