How to estimate future option value

Discussion in 'Options' started by vdwielto1, May 15, 2009.

  1. vdwielto1


    I have a few questions on estimating future option values.

    When an option jumps from ITM to OTM or vice versa does that:
    1. change the time value (in absolute terms)
    2. change the time value decay

    Lets say you bought an ATM call (strike price 22) on dec2008 with expiration on dec 2012. That call cost 7 euro (all time value).

    I would like to know how to estimate the call value in a scenario where we are one year further and for instance the stock price moved violently to holt at 25 on dec 2009.

    Since option value is the sum of intrinsice value + time value + volatility premium I would assume:
    1. You won Intrinsic value plus 3
    2. You lost the first year of time value but maybe time value also increased because of higher volatility?

    How can one make a rougb estimate of the change in time value given the change in stock price, time left to expiration and volatility?

    There is a calculator on the site, anyone any experience with this?