An options calculator is used to calculate your options profit or loss. The calculations are based on the options price, the number of contracts, current stock price, and strike price.
What is an Options Strategy Calculator?
An options strategy calculator is a unique tool that can help view the return and the profit and loss for options trading strategies. It is used to chart multi-leg option strategies. Some calculators can be customized with as many as eight-leg options.
You can calculate the profit and loss for the overall strategy using this. You can use it to chart covered calls, covered puts, credit spread, call spread, put spread, and other complex options positions. In addition, you can use the options calculator to view the theoretical value of your options premium or implied volatility.
How is the Price of the Options Determined?
There are many similarities between options and other investments. In all, you need to know what determines the market. Current stock price, time to expiration or time value, intrinsic value, and volatility are some of the common factors. You need to know about all these factors to understand the price and use the price shifts for your benefit.
The current price of a stock is pretty straightforward. As the price of the stock moves up and down, it directly affects the price of the option. As the price of the stock increases, the call option will rise, while the price of the put option will fall. If the stock price goes down, the opposite will happen to the price of the calls and puts.
There are several models used to estimate the returns at a range of dates and potential underlying prices. Black Scholes Model is the most popular and widely used amongst all. Other models that are used in the calculation are the binomial model and trinomial model.
Here, understand the Black Scholes Model as it is the foundation of most options calculators you commonly find.
What is the Black Scholes Model?
The Black Scholes Model refers to a mathematical formula that simulates the dynamics of the financial market. Usually, it involves complex calculations. But today, many platforms have an in-built option calculator where you just have to input the values to get the answer. According to this model, six factors can affect options prices.
These factors are mentioned below:
- C=call option price
- N=CDF of the normal distribution
- St=spot price of an asset
- K=strike price
- R=risk-free interest rate
- t=time to maturity
- σ=volatility of the asset
With the help of the values of the implied volatility and options price calculated by the option calculator, you can formulate a better trading strategy. A calculator simplifies your task and helps you avoid long manual calculations. It makes calculations and analysis easy for even those who have just entered the options trading market.
Using an options strategy calculator is extremely beneficial. It can help you determine your investment portfolio’s value in today’s ever-evolving market and offers you a simplified way to determine the profit or loss for your stock options strategy.
This article is for information and educational purposes only and does not form a recommendation to invest or otherwise. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.