Registered: Dec 2002
06-19-12 07:37 AM
This is how I calculate an option probability cone on a price chart
TradePrice = 130
Implied vol = 18.25%
DaysToGo (Option Days to Expiration)=35
Sigma(or 1x StdDev) = 1
Total Days = 365
FORMULA - [No interest rates]
ConeVal = Sigma * Price * (Implied vol / 100) * Math.Sqrt(DaysToGo / TotalDays)
UpperLineConeValue = TradePrice + ConeVal
LowerLineConeValue = TradePrice - ConeVal
Question: If I have interest rate of 2.25% and dividend of 1%, where do I stick these into the formula? Any ideas?? Please be specific ...
Interest rates do this to premiums .."
An increase in interest rates will drive up call premiums and cause put premiums to decrease. To understand why, you need to think about the effect of interest rates when comparing an option position to simply owning the stock. Since it is much cheaper to buy a call option than 100 shares of the stock, the call buyer is willing to pay more for the option when rates are relatively high, since he or she can invest the difference in the capital required between the two positions"...
Read more: http://www.investopedia.com/article...p#ixzz1yDcl3Do6"