Microsoft is testing a new feature for its AI search chatbot, Bing Chat, that can infer the probability of future stock prices using option prices. The feature is still in development, but if it is successful, it could revolutionize the way investors make decisions.
Option prices are based on the market’s expectation of future stock prices. By analyzing option prices, Microsoft’s new feature can estimate the probability that a stock will be above or below a certain price at a future date. This information can be used to help investors make more informed investment decisions.
For example, if the feature estimates that there is a 70% chance that a stock will be above $100 in a year, an investor may be more likely to buy the stock. Conversely, if the feature estimates that there is only a 30% chance that the stock will be above $100 in a year, the investor may be more likely to sell the stock.
The new feature is still under development, but Microsoft has said that it plans to roll it out to Bing Chat users in the coming months. If the feature is successful, it could have a major impact on the way investors make decisions.
A new feature we're starting to flight: inferring the market's probability of future stock prices from option prices. This is not done by any free consumer tool yet, I think. Note how earnings calls increase uncertainty. pic.twitter.com/xqgumcHoPO
— Mikhail Parakhin (@MParakhin) June 27, 2023
How the Feature Works
The new feature works by using a technique called option pricing. Option pricing is a way of determining the fair price of an option contract. An option contract gives the buyer the right, but not the obligation, to buy or sell a stock at a certain price on or before a certain date.
The price of an option contract is determined by a number of factors, including the stock price, the strike price, the expiration date, and the volatility of the stock. The volatility of a stock is a measure of how much its price fluctuates over time.
Microsoft’s new feature uses option pricing to estimate the probability that a stock will be above or below a certain price at a future date. The feature does this by looking at the prices of option contracts on the stock. If the prices of the option contracts are high, it means that the market expects the stock to be above the strike price at the expiration date. Conversely, if the prices of the option contracts are low, it means that the market expects the stock to be below the strike price at the expiration date.
The Potential Impact of the Feature
The new feature has the potential to revolutionize the way investors make decisions. By providing investors with information about the probability of future stock prices, the feature can help investors make more informed investment decisions.
For example, if an investor is considering buying a stock, they can use the feature to estimate the probability that the stock will be above a certain price at a future date. If the probability is high, the investor may be more likely to buy the stock. Conversely, if the probability is low, the investor may be more likely to sell the stock.
Microsoft’s CEO of Advertising and Web Services, Mikhail Parakhin says that this is the only free tool of its kind he can think of. He does not say when the feature will come to Bing Chat, but a launch before the end of the year is likely.
