Discussion in 'Options' started by GatsbyGirl, Apr 23, 2006.
Where can I find or how can I manually calculate the % to double on an option?
You would always have to re-calculate since IV and time to expiry changes.
You could just look at the option chain and do a quick calculation in you head to figure out the % move required to double the option.
Check macmillan's site. Several tools and calculators there.....free.
OK so I stink at figuring this stuff out. Can you help me figure one with the following example?
May 7.50 CALL
If all other factors being equal, if the stock was trading at roughly $11.65 your option would double in value. don't ask me how to calculate, i eyeballed from my profit & loss graph from the thinkorswim platform.
% to double is a bs figure invented by one of those news letterguys that has no relevance in that it does not take in to account any other factors that effect an options price.
It's a useless number IMO but here it is
(1/.97)/10.70=0.096348 or 9.63%
target stock price
(% to double + 1) X stock price
It's a lot faster to use some software pricing model. That way you can adjust for iv and time decay also and play around with the different scenarios/greeks.
I don't know the exact definition of % to double, cause I think it's useless, but how in the world would a $3.4 option with a delta of 0.97 double in value if the stock moves up by $1!?
I.e. we have an option price $3.4
stock @ 10.70.
10.70 to 11.70 is $1*0.97=$0.97. $0.97+3.4=4.37. Doesn't look like a double to me.
Ahm. You have delta, you have gamma, you have original price. From Taylor expansion, you can describe the change in option value as
Change = UndChange * Delta + .5 * Gamma * UndChange^2
So, solving a quadratic equation (3rd grade, i recon), we get
Double Change = [ -Delta +/- Sqrt(Delta^2 - 2 * Gamma * CurrentOptPx) ] / Gamma
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