Option Calculator is used to calculate Greeks for a given option. There are several algorithms available but Black-Scholes & Binomial algorithm are the most popular. In this video we will discuss these concepts in great details and we will also discuss how to use them practically in our trading strategies. Also. we will discuss how to adjust the strategies (also known as strategy repair) There are seven factors using which option’s fair value can be calculated. They are stock price, strike price, time to expiry, option type (call / put), volatility (HV), interest rate and dividend. By passing the above seven parameters to the Black-Scholes Model we can arrive at the theoretical value of an option. Greeks are calculated based on models such as Black-Scholes or Binomial. They are used to study and analyze the behavior of options.
Delta measures the speed of the option’s price movement relative to the underlying stock price. It indicates the amount by which an option’s price will change for corresponding one-point change in the price of the underlying stock or index.
Gamma measures the amount by which delta changes for 1 point change in the stock price. If delta is viewed as the ‘speed’ of the option price movement relative to the underlyer stock then gamma can be viewed as the ‘acceleration’
If you have any doubts about this topic or any topic related to call or Put option or options trading in general please feel free to post your queries.
Options are considered wasting assets. If we consider all other factors such as stock price and volatility as constants then with each passing day the option will lose its value at a certain rate. Theta is a measure of how time decay affects the options premium
Vega can be interpreted as the amount by which the price of the option will change with 1% change in the volatility. So, basically we can say that Vega measures the sensitivity of the options premium relative to the change in the underlying stock’s volatility
Option Greeks are heavily used in Option Strategies like Calendar Spreads, Gamma Scalping, Delta-neutral etc.
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