Recent content by mikhail

As I already said, this is a theoretical example, with the values picked at random, just for the sake of demonstration. The question to which I am trying to get an answer is this: Does it make sense to calculate the IV of the whole strategy? Or is IV a figure that has sense when applied to...

The IV curve is somewhat theoretical, of course. The figures were selected to make the example more striking. The main question is: does it make sense to calculate the IV of the whole strategy? Or is IV a figure that has sense when applied to individual options only?

I came across a kind of paradox while trying to calculate the IV of a butterfly strategy. 1) Let’s suppose that we create a 90 / 100 / 110 1-year butterfly using call options and that the IVs of call are 30% / 40% / 50%: Link to strategy: http://optioncreator.com/st7wkz0 2) When I tried to...

Thank you, Robert, I will think it over.

For American put it is clear now. Still a bit confused as to why time value can be negative for European puts...

Robert, this is a European options calculator (because the Black-Scholes model works only for European options, not American ones). I guess with American options there will be no negative time value. As for the rate and the dates, since I am calculating the theoretical value of an option - the...

Hi Robert, if we look at a standard Black-Schole calculator, then we can easily see that a put can have a fair value smaller than the intrinsic value: Intrinsic value = Max (Strike - Price; 0) = 100 - 50 = 50 Black-Scholes value = 45,1196

I recently by chance discovered that put options can have a negative intrinsic value, which can be easily seen on this graph: Call options, on the other hand, always have a positive intrinsic value. The question is: why can puts have a negative intrinsic value? What is the easiest and...

There are so many ways to manage this risk: 1) Use a simple stop loss and close the trade if it had reached a certain loss level. 2) Hedge the position by shorting a stock (so that the delta of the position becomes zero). 3) Buy another put (with a different strike or the same, doesn't...

Victor, I think the easiest way to determine whether a certain strategy is long or short volatility is to see how the value of the strategy changes when volatility changes. A butterfly has options that are both purchased and sold, and the problem is that at certain prices the butterfly may be...

The instrinsic value of a call is: Max (Price - Strike; 0) The intrinsic value of a put is: Max (Strike - Price; 0)

Victor, I think the best way to understand how an option strategy works is by looking at the option strategy chart. Here you can see what P/L you will make on your buttefly at expiry and 1 day before expiry: I saved your strategy here, so you can see and play with it...

Brighton, thank you, I see. Seems a bit strange that companies like Yahoo or Google cannot provide them for free - like they do for stock quotes, for example.