How do we use option price models (like Black-Scholes Model) to make money in practice?

In quantitative finance, we know we have a lot of option price models such as geometric Brownian motion model (Black-Scholes models), stochastic volatility model (Heston), jump diffusion models and so on, my question is how can we use these models to make money in practice?

My comments: Because we can read option price from the market, by these models (Black-Scholes), we can get the implied volatility, then we may use this implied volatility to compute other exotic option price, then we can make money by selling/buying this exotic option as a market maker, is this the only way to make money?

For stocks, we know that if we have a better model to predict future stock prices, then we can make money, but for option, it seems that we didn't use these models to predict the future option prices? so how can we make money with these models?

Answer

In general there are two basic ways to make money out of your option pricing models:

Sell side (market maker, risk neutral): You use these models to calculate your greeks to hedge your portfolio, so that you live on the spread.

Buy side (market/risk taker): You use your model to find mispriced options in the market and buy/sell accordingly.

(A third possibility would be to write fancy books and papers about these models and get rich and/or tenure this way ;-)