Thiruspace.com : SampleTopics : Option Analytics 8.1.12
Black-Scholes Vanilla Option Calculator for Equities
(Simple Version for Handheld usage)
No study-guide is ever complete without a formal discussion of the revered Black
Scholes model.
It is perhaps a religion, (sort of a typical bowing down of Arjuna in front of
Drona) before any dramatic conceptualization of thought.
Let us also follow the same rigmarole and try to get what best we can..
Following Calculation can be used for both Dividend and Non-Dividend paying
stocks. For Non-dividend stocks, type in Dividend Yield as "0".
(I consciously kept "Option Expiry" field as Number of Years, instead of
allowing a Date Input. Reason: I want this application to Work on most Handheld
devices. Upon testing, I realized that some Pocket browsers do not handle
date Formatting correctly, therefore, I am using YearFraction as a substitute for
actual dates.)
Change following Parameter fields and Click on "Calculate Option Price" button
below .
(The button below calculates Price/Sensitivity data for
BOTH Call and Put Types).
Change the Option parameters above and Click Calculate Option Price button, to
see new list of price and sensitivities. sitivities. nsive-column">
Concept::
For vanilla LONG Option positions:
1. Gamma is positive for both Calls and Puts and it is same for both types.
And so is Vega. Gamma represents
convexity factor (the second-order derivative) and is always positive. Vega is
a measure of Volatility - since there can be either a presence or absence of
volatility, Vega is either Positive or Zero depending on whether there is
Optionality or otherwise in a Long position.
2. Delta is positive for Calls and Negative for Puts.
Theta is Negative for Both Calls and Puts (Why - because option premium
is an expense for the vanilla Option holder and this expense-decay is measured by
Theta).
For SHORT Option positions, the converse of above applies.