Options Calculator

The Options Calculator helps you evaluate options contracts simply and powerfully. Enter a symbol of the underlying security, and the Calculator will automatically analyze the near-term, at-the-money option. It also plugs in the current price, strike price, days to expiration, implied volatility, current interest rate, dividend date, amount, and frequency. Instant calculations of the Greeks also appear on the right side of the screen, giving you a convenient, up-to-the-minute summary of any option you're considering or holding.

Getting an Overview of Your Options

The Options Calculator lets you see a complete, concise "picture in numbers" for any option you're considering as a trade or already holding. To begin, simply enter a symbol, option or underlying, in the upper-left corner and click "Go".

If an underlying symbol is entered, the Calculator automatically populates with the nearest-term option closest to the current price of the underlying. The left side of the screen provides underlying price and related dividend and interest-rate information; while the right side of the screen takes those figures and calculates theoretical options value and some key Greeks.
 
Note that the Calculator inputs the style of option automatically. Typically stock options trade as American-style instruments, based on the binomial pricing model, while index options trade European-style on a Black-Scholes Model.
 
Use the black arrow keys to jump from the pre-populated, near-term option to a higher or lower strike. You can also jump one point at a time on the last-price using the arrow keys by the "Price" field.
 
The Calculator starts by pre-populating the nearest-term option, but you can change this selection easily to either a further-out option or "Custom", which allows you to enter any number of days to expiration that you choose. The "Days to Expiration" field, right below "Expiration Date", is calculated accordingly.
The remaining fields on the left - implied volatility, interest rates, and dividend information - are also pre-populated for your convenience based on the current marketplace.
 
If you have forecasts about these figures that you want to test, simply enter your own figures into any of these fields and click "Re-Calculate". The calculations and Greeks to the right will all then re-calculate according to the new assumptions.
Note that implied volatility on the left is calculated as an average of the current implied volatilities of both near-term put and call options.
 
The right column takes everything entered on the left and calculates theoretical options value ("Options Value") and some key Greeks. You can then compare these figures with the current bid-ask spread for both the put and call on the strike you've chosen - a handy compendium of key figures to use as you make trading forecasts and decisions.
For quick definitions of any of the Greeks shown, simply click on the name of the Greek.
 
Note that alpha in the options marketplace means something different than it does in the stock or mutual fund worlds. "Alpha" is a ratio comparing gamma to theta, in other words comparing how much acceleration you can expect to see in your delta to time decay, or theta. Typically long option buyers like large gamma, but it's also difficult to find an option with large gamma that doesn't also decay rapidly as it nears expiration. Alpha can be a useful shorthand for watching this key relationship between two Greeks.
 
 
 
 

Computing Implied Volatility for Your Option

As you probably know, implied volatility is interpreted from the current premium of the put and call option on the same strike, so the two figures are tightly linked. If you have a viewpoint you want to test, consider using the "Compute Implied Volatility" box in the lower-right corner of the Options Calculator.

In this example, the IBM August06 75 Call is currently trading at 1.70 / 1.75. If you see what the implied volatility is if the option was trading at 1.80, you can plug in this figure and immediately see what this price means for in terms of implied volatility. In this example, such a price would mean implied volatility would jump from 16.59%, its current value, to 17.2%. To see the implications to the Greeks, simply input the new implied volatility, 17.2%, on the left of the Calculator and click "Re-calculate" to see all the data on the right side reflect the new volatility.
 
 
 
 

Testing Your Forecasts: An Example

Every value on the left-hand side of the Options Calculator can be overwritten with a value you choose, so that you can fine-tune the figures to test any predictions you may be weighing.

Let's consider a simple example: if IBM is currently trading at 76.19, you may be interested to purchase the near-term call because you believe IBM will move to 80 in the next ten days. If, however, that scenario does not play out, you'll want to exit the position. What would happen to the August 75 Call if these assumptions actually happen?

To see the implications for these ideas in numbers, simply enter the following figures in the fields to the left:

Clicking "Re-calculate" shows new figures for the theoretical options value, as well as revised Greeks:
The "Bid / Ask" field is empty because these figures are based on hypotheticals. As you can see, if your assumptions are correct the IBM August 75 Call would increase from 1.7636 to 5.0794 in ten days. Of course, this jump is so considerable in part because the example involves a time relatively close to the expiration date, when changes in the underlying tend to move the options price more dramatically.
 
The Options Calculator is a concise, robust tool for examining your price and volatility forecasts and what they might mean for the Greeks and other key values.
 
 
 

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