Calculate the price of the underlying using options prices

hardtofin

hardtofin

Hi guys,

I am sure there is a way to do this, but for the life of me I can't remember how or find anything online about it.

Essentially I want to use option prices to find the underlying price of that months synthetic future.

For example, most indices have quarterly futures Mar/Jun/Sep/Dec. But I know that for for example, the April series of options will be priced off a synthetic April future. This isn't a real future, and can't be traded, but it is theoretically where the underlying will be at the April expiry, when Interest Rates, dividends etc are taken into account.

Does anyone know how to calculate this please? I think it is something to do with the price of the call and put at the same strike, but am struggling to remember.

Many thanks for any help

hardtofin :)
 
# U= Ndx - PVDiv = Exp(-RT)*X+(C-P);
# Where Ndx is the proper Spot price for the index (in this calculation, it is not required, as we are seeking
# U. R is the anualized interest rate, X is the strike price, C and P is the mid-point price of the Call and
# Put respectively at the indicated strike.
 
Easiest cheat way is to take deep ITM call which should be 99% intrinsic value. This is like doing a back of the envelope quick quote if that is all you need.

For example, VIX APRIL 10.00 Call is 3.20/3.40.
Implies VX April Future of 13.20/13.40 approximately.
Current April VX quote is 13.30/13.35.

Works best for liquid options/futures which trade monthly.
 
El OchoCinco said:
Easiest cheat way is to take deep ITM call which should be 99% intrinsic value. This is like doing a back of the envelope quick quote if that is all you need.

For example, VIX APRIL 10.00 Call is 3.20/3.40.
Implies VX April Future of 13.20/13.40 approximately.
Current April VX quote is 13.30/13.35.

Works best for liquid options/futures which trade monthly.
More...
Can you explain this with a stock example?
 
stepandfetchit said:
# U= Ndx - PVDiv = Exp(-RT)*X+(C-P);
# Where Ndx is the proper Spot price for the index (in this calculation, it is not required, as we are seeking
# U. R is the anualized interest rate, X is the strike price, C and P is the mid-point price of the Call and
# Put respectively at the indicated strike.
More...

That is the actual formula but a quick and dirty, "eyeball" method is to see or extrapolate where calls and puts have the same price . At that point their value would consist entirely of Extrinsic (time) value and it would be approximately the ATM for that underlying's value at expiration
 
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