Forumla to calculate prices with options?

K

klurby

Hey guys I need your help, is there a formula to find out how much each $0.01 in the underlying is worth according to the options delta.

FOR EXAMPLE
XYZ Stock is trading $3.00

XYZ September 17' 2011 Call is trading $0.12

XYZ September 17' 2011 Call delta is 0.35


My question is, what formula would I use to figure out what the ESTIMATED option value would be when the underlying is trading $3.25 How much would each $0.01 move in the underlying stock affect the option value? Please help guys! thanks!
 
Yes, assuming vol remains constant, it's just basic Black-Scholes... If my arithmetic is correct, option is likely to be worth smth like 0.20 or 0.21, roughly. I could be having a senior moment, obv.
 
Yes... Roughly it's deltaPxOpt = delta * UnderlyingPxChg + 0.5 * gamma * (UnderlyingPxChg ^ 2), if my memory doesn't fail me. Whether you want to ignore the gamma term is up to you.
 
Part of trading options is making an assumption as to what vol. will
be after time passing or a change in price on the equity. You can assume there is no change, that will go into you strategy. Just understand if your wrong, your P&L will be different.
 
Quote from klurby:

My question is, what formula would I use to figure out what the ESTIMATED option value would be when the underlying is trading $3.25

IF volatility remains unchanged AND no time elapses, the call will be woth 29 cts at $3.25

How much would each $0.01 move in the underlying stock affect the option value?

Can't answer that because delta is non-linear - it increases as the underlying gets more ITM. A nickel gain in the UL at $3.00 doesn't produce as much call as a nickel of UL gain at $3.20.

More...
http://www.ivolatility.com/calc/?ticker=SPX
 
Quote from Martinghoul:

Yes, assuming vol remains constant, it's just basic Black-Scholes... If my arithmetic is correct, option is likely to be worth smth like 0.20 or 0.21, roughly. I could be having a senior moment, obv.
More...
I didn't think you were senior enough for a senior moment. I, on the other hand, ...
 
Quote from HowardCohodas:
I didn't think you were senior enough for a senior moment. I, on the other hand, ...
More...
It's the emotional age, HC, not physical... I been staring at the European debacle and it has aged me prematurely.
 
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