Options Calculator
What is Option Value Calculator?
The option calculator uses a mathematical formula called the Black-Scholes to predict and analyse options.
To calculate the theoretical value of an options premium or implied volatility, you can use the options calculator.
Now let us understand the Black Scholes Model, which is the foundation of options calculator.
What is Black Scholes Model?
The Black-Scholes model is a mathematical equation used for pricing options contracts and other derivatives, using time and other variables. Popular finance and stock portals have inbuilt options calculator.
How to use Options Calculator?
Spot price: This is the price at which the underlying is trading.
Interest rate: This is the risk-free rate prevailing in the economy.. You can put the 91-day Treasury bill data from the RBI (Reserve Bank of India) website for the interest rate value.
Dividend: Input the expected value of dividend per share, where the stock goes ex-dividend within the period of expiry.
Number of days prior to expiry: It is the number of calendar days left to expiry.
Implied volatility: To calculate the theoretical value of options premium, put the implied volatility value. Volatility Index (VIX) value can be put here as it is a reliable measure of market volatility.
While, if you want to calculate implied volatility, then you need to put options price as the fifth input in the options calculator.
Options Price: Which is also called the ‘Actual Market Value’. To calculate implied volatility you need to put the actual market value for the options price. This is the rate at which the option is being traded in the market.
FAQ’s
What are options?
Options are financial derivatives that give the buyer the right to buy or sell the underlying asset at a stated price within a specified period.
What is option Greeks?
In short, the Greeks refer to a set of calculations you can use to measure different factors that might affect the price of an options contract. With that information, you can make more informed decisions about which options to trade, and when to trade them.
They are:
Delta: Which can help you gauge the likelihood an option will expire in-the-money (ITM), meaning its strike price is below (for calls) or above (for puts) the underlying security’s market price.
Gamma: Which can help you estimate how much the Delta might change if the stock price changes.
Theta: Which can help you measure how much value an option might lose each day as it approaches expiration.
Vega: Which can help you understand how sensitive an option might be to large price swings in the underlying stock.
Rho: Which can help you simulate the effect of interest rate changes on an option.