Forumla to calculate prices with options?

Discussion in 'Options' started by klurby, Jul 10, 2011.

  1. klurby

    klurby

    Hey guys I need your help, is there a formula to find out how much each $0.01 in the underlying is worth according to the options delta.

    FOR EXAMPLE
    XYZ Stock is trading $3.00

    XYZ September 17' 2011 Call is trading $0.12

    XYZ September 17' 2011 Call delta is 0.35


    My question is, what formula would I use to figure out what the ESTIMATED option value would be when the underlying is trading $3.25 How much would each $0.01 move in the underlying stock affect the option value? Please help guys! thanks!
     
  2. rosy2

    rosy2

    look at gamma
     
  3. Yes, assuming vol remains constant, it's just basic Black-Scholes... If my arithmetic is correct, option is likely to be worth smth like 0.20 or 0.21, roughly. I could be having a senior moment, obv.
     
  4. klurby

    klurby

    So is there a formula to figure out what an estimate would be or no?
     
  5. Yes... Roughly it's deltaPxOpt = delta * UnderlyingPxChg + 0.5 * gamma * (UnderlyingPxChg ^ 2), if my memory doesn't fail me. Whether you want to ignore the gamma term is up to you.
     
  6. rmorse

    rmorse Sponsor

    Part of trading options is making an assumption as to what vol. will
    be after time passing or a change in price on the equity. You can assume there is no change, that will go into you strategy. Just understand if your wrong, your P&L will be different.
     
  7. spindr0

    spindr0

    http://www.ivolatility.com/calc/?ticker=SPX
     
  8. I didn't think you were senior enough for a senior moment. I, on the other hand, ...
     
  9. It's the emotional age, HC, not physical... I been staring at the European debacle and it has aged me prematurely.
     
  10. VGSSD

    VGSSD

    Just look up the multidimensional taylor formula.
     
    #10     Jul 11, 2011