I know there are fair value calculators for stock options, but are there any calculators or methods on how specifically to find the fair value of an index option, or an index option spread, that would be beneficial to use while trading SPX or RUT? If you have experience trading these index options, how do you go about determining the fair value, or the price you are willing to pay, when you submit an options order on an index?
Finding the fair price of index options
- Thread starter thetafarmer
- Start date
I'm not sure what you mean by fair value. I can tell you that these cash index options are pegged to the ES future for valuation and most traders use market implied dividends and interest. After that, only you can determine where you are willing to buy or sell vol and what skew curve you feel will mimic the near future. We never know fair value until after time passes.
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