The options calculator below can help you with both call and put options.
Feel free to test out some examples to find an option’s theoretical price. Then below the options profit calculator, you can learn more about how it works…
Options Calculator Calls vs. Puts
This calculator shows potential prices for both calls and puts. So, let’s do a quick refresher on each before getting into how to price them.
When you buy a call option, it gives you the option to buy shares at the agreed upon strike price up until the expiration date. For example, let’s say you buy a call option on ABC corp at a strike price of $40 that expires in a month. As long as ABC corp shares trade above $40, your call option would be considered in-the-money. For example, if ABC shares trade for $45, you could execute the call option that lets you buy shares at $40. Then you could turn around and sell them for $45 in the open market.
When you buy a put option, it give you the option to sell shares at an agreed upon strike price up until the expiration date. For example, let’s say you buy a put option on ABC corp at a strike price of $40 that expires in a month. As long as ABC corp shares trade below $40, your put option would be considered in-the-money. For example, if ABC shares trade for $35, you could execute the put option that lets you sell shares at $40. This allows you to buy shares in the open market for $35 and then sell them for $40.
Said another way, put options allow you to bet that share prices will decrease. On the other hand, call options allow you to bet that share prices will increase. Although, option trading strategies can become much more complex. And for more basics, here’s some insight into how to trade options.
Calculating Option Prices
There are many formulas to determine option prices. Although, most of them follow a very similar playbook. So, with our options calculator, let’s review how the inputs impact option prices (aka premiums)…
As shown in the examples above, both Stock Price and Strike Price are major inputs. When it comes to call options, the premium increases as a stock’s price climbs above the strike price. And the further it climbs, the option’s premium tends to move in a $1-for-$1 fashion with the underlying stock price. Without getting too complex, far in the money call options have a higher delta.
For the Interest Rate, it’s generally the risk-free rate on U.S. government bonds. You see this often in valuation formulas and it helps with determining the time value of money.
For pricing options, Historical Volatility is a large factor – and more so, volatility going forward. You can use a stocks past trading activity to determine how volatile it might be going forward. If it’s more volatile, the higher the option prices for both calls and puts. In other words, higher than expected volatility is good for option buyers.
For the last major input for this options calculator, Days Until Expiration is vital to understand. The longer the contract lasts, the more time to see price swings. So, if you’re buying either calls or puts – with stock prices close to strike prices -, you’ll have to pay more the further out the expiration.
As you test different option examples, you can get a better idea of option price movements. And to learn more about option pricing, check out the Black Scholes model.
New Trading Opportunities and Tools
We hope this insight and the options calculator comes in handy. Feel free to bookmark or share this page. Also, here’s some other useful financial calculators and investment research…
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