Beat Wall Street at Its Own Game with TradeSmith’s New Fair Value Tool

By Mike Burnick

Financial markets are often efficient – but there are times when investors can still beat Wall Street at its own game.

After nearly 40-years in this business, I can tell you: Market pricing is generally efficient most of the time … but not all of the time.

And that’s especially true in certain corners of the market that are more volatile.

Even in very liquid markets like the New York Stock Exchange (NYSE), there are inefficiencies in the way certain stocks are priced.

Just think about the long-term performance advantage of “value” stocks over “growth” stocks. That inefficiency exists because investors are emotional.

It’s easy to fall in love with a great story behind a hot growth stock. And it’s just as easy to ignore a blue-chip stock that’s fallen from grace and is going down in price.

But it’s because of this emotional dynamic that investors frequently overpay for growth stocks – even outstanding ones – while fallen blue chips often get overlooked by investors until they’re so cheap they finally turn around.

But for my money, one of the best places to consistently spot price inefficiencies – that you can potentially profit from – is the options market.

A Smarter Way to Spot Opportunity: The Fair Value Options Tool

Option prices for stocks and ETFs are based on models of probability analysis and implied volatility –essentially, best guesses about how unpredictable the underlying security price will be.

But today’s volatile, high-frequency trading environment can make it difficult for the models to keep up with ever-changing reality.

That’s when you can find and profit from pricing inefficiencies – and now, our software developers just launched a great new tool to help you do just that.

Our exclusive, new TradeSmith Fair Value Options graph compares the latest market price of any option to its data-driven fair value – calculated internally using our own methodology.

This shows you, at a glance, whether an option is statistically (and relatively) cheap or expensive.

While it can’t predict the future, the Fair Value graph can help you uncover hidden opportunities to profit when market prices diverge from what the historical data, volatility, and probability suggest is the “right” price.

For options traders, that means you can quickly recognize opportunities to buy low (undervalued options) and sell high (overvalued options).

Please Note: The Fair Value Options tool is available only to TradeSmith Platinum members. And if you aren’t a member yet, this tool is another great reason to consider joining Platinum today. Simply call us at 888-623-0858 to learn more.

To locate and start taking advantage of this valuable tool, simply log into your TradeSmith Finance account, click on the Dashboard page from the main menu, and scroll down. You’ll find the Fair Value widget just above the Platinum Model Portfolios.

In the example above, I’m looking at Palantir Technologies (PLTR) call options.

The blue line represents the theoretical fair value options curve, calculated by TradeSmith using a modified Black-Scholes model.

The green dots indicate actual market prices. I’ve labeled the options that appear overvalued (at upper left). That’s when the green dots are above the blue line.

And when the green dots are below the blue line those options appear undervalued (lower right).

Simply hover over any dot with your mouse to view details about how underpriced the option is, according to our analysis.

For example, the PLTR July 18, 2025 $141 call option last traded at $4.63. But according to our calculations, its fair value should be $6.53.

So, if you’re bullish on PLTR shares, your profit potential to buy this call option should be somewhat greater than expected if the stock rises and the option price converges toward fair value.

Option trading tips

  • A buyer of call and put options should look for undervalued options relative to fair value…
  • And if you’re a seller of call and put options, perhaps as a way to earn income, look for options that are overvalued compared to fair value.

Here’s an example below – this time using the same analysis but for PLTR put options.

For instance, let’s say you’re bearish on PLTR and expect the stock to drop. You might consider scanning for put options to buy.

The PLTR Aug. 15, 2025 $110 put option recently traded at $2.04 – but its fair value is only $1.86, according to our calculations.

So, in this case, you may be overpaying to buy this put option. But you can also look at it another way…

If you’re looking to sell this out-of-the-money put option to earn income – and perhaps aim to buy PLTR shares cheaper – you’ll be getting paid more than fair value for selling it.

And you can earn a bit extra as the option price converges with its fair value.

This is critically important info for frequent option traders – knowing whether an option is over- or undervalued before placing a trade can make a real difference.

You can also use the same Fair Value tool on the Dashboard to quickly scan for possible option trade ideas.

Simply click on Top Overvalued or Top Undervalued, and toggle between call and put options.

  • The top overvalued calls (shown above) could be good candidates for selling covered calls, buy writes, or selling uncovered calls.
  • The top overvalued puts could be favorable ideas for generating income by selling uncovered calls at a premium above the fair value, while potentially aiming to buy stocks at a discount.

Please Note: The Top Overvalued and Top Undervalued tabs are not available just yet, but they’re coming soon – so, stay tuned!

The options that make these lists are those that appear most over- or underpriced according to our fair value algorithm.

They also meet other criteria in terms of the option liquidity and the degree of over- or undervaluation.

You’ll also find listed other important stats including…

  • Fair Value vs. Latest Price
  • Probability of Profit
  • Margin and Cash-Secured ROI (return on investment)
  • And the Max Profit you’ll earn for selling the option.

Mike Burnick’s Bottom Line: It’s critically important to know whether any option is overvalued or undervalued before you place a trade. Our new Fair Value Option graph gives you a quick view of the market price compared to the data-driven fair value. Don’t leave home – or trade options – without it!

Good investing,

Mike Burnick
Senior Analyst, TradeSmith

P.S. The Fair Value Options tool is one way to spot hidden pricing gaps in real time.

But if you’re looking for the next big wave of opportunity – one that could deliver explosive upside in a forgotten corner of the market – then you’ll want to pay close attention to what happened last night…

Legendary investor and my colleague at InvestorPlace, Louis Navellier, just held a special briefing about a critical government move he believes could supercharge the next phase of the AI boom.

And it all ties back to Trump’s Executive Order #14179 – a fast-approaching July 22 deadline.

According to Louis, this order is about to put a handful of overlooked U.S. companies – not AI giants like Nvidia or Meta – on a government-backed “fast track” creating the potential for massive gains in a niche sector that quietly powers the entire AI buildout.

He even gave away the name and ticker of one of his top picks during the event.

If you missed the live briefing, don’t worry. Click here to watch the full replay of “Trump’s AI Day” now.