21st May 2022

Option Price Calculator

Option Price Calculator

The option price calculator is an arithmetic calculating algorithm, which is used to speculate and it also helps us to analyze options. 

The option calculator is used to calculate the theoretical price of an option’s premium so it also can be called an option premium calculator which is based on the Black-Scholes Model.

What is Black Scholes Model?

A Black-Scholes calculator is an online tool that can be used to determine the fair price of a call or put option based on the Black Scholes option pricing model. You have to enter the prices of stock price, strike price, interest rate(%), volatility(%), the term (in days).

How to use the option price calculator? 

To use the option calculator, you must enter the following mandatory inputs:

Spot price: A Spot price is the current price of an underlying asset.

Strike price: The strike price of an option is the price at which a put or call option can be exercised.

Interest rate: Here, you need to put the risk-free prevailing rate in the economy. You can put the 91-day Treasury bill data from the RBI (Reserve Bank of India) website for the interest rate price., Usually (10%).

Term (in days): It is the number of days left before the date of expiry.

Apart from these mandatory inputs, if you are looking forward to calculating the theoretical price of option premium, then you need to put implied volatility as the fifth input.

Volatility: To calculate the theoretical price of option premium, but the implied volatility price. Volatility Index (VIX) price can be put here as it is a reliable measure of market volatility.

Option Price Calculator – FAQs

What are Option Greeks?

The price of an option is a function of many variables such as time to maturity, underlying volatility, the spot price of the underlying asset, strike price and interest rate, it is critical for the options trader to know how the changes in these variables affect the option price or option premium. The option Greeks’ sensitivity captures the extent of risk related to option trading. The sensitivity measures are Delta, Gamma, Theta, Vega and Rho.

What is Delta?

Delta is a ratio sometimes referred to as a hedge ratio that compares the change in the price of an underlying asset with the change in the price of a derivative or option. The delta value varies from 0 to 1 or 0 to 100 scale

What is Gamma?

It is the rate that delta will change based on a Rs 1 change in the stock price. So if delta is the “speed” at which option prices change, gamma is the “acceleration.” options with the highest gamma are the most responsive to changes in the price of the underlying stock.

What is Time decay, or theta?

Time decay is a measure of the rate of decline in the price of an option contract due to the passage of time. Time decay accelerates as an option’s time to expiration draws closer since there’s less time to realize a profit from the trade.

What is Vega?

Vega measures the amount of increase or decrease in an option premium based on a 1% change in implied volatility. Vega is a derivative of implied volatility. Implied volatility is defined as the market’s forecast of a likely movement in the underlying security.

What is Rho?

Rho is used to finding how sensitive an option’s price is to any changes in interest rate levels. Rho can be either positive or negative depending on whether the position is long or short, and whether the option is a call or a put.