IB TWS Option Modeler - always quite low

[luh3417]

IB's TWS default option model always shows extremely low prices (far below market) for every single call I have entered.

Do you consider these model valuations valid, and if not, how have you tweaked your model to get more realistic model prices?

(For those of us using Interactive Brokers TWS software, the option modeler will calculate for you a model price for each option. You have to select that feature, turn it on, and then you can display the model price right on the Page. )

 

[just21]

I am looking at the dax on tws and the calls are cheaper than the model. What market are you looking a?

 

[luh3417]

I entered DAX and it said I don't subscribe to that market data (TSE). I have been experiencing this with ordinary near term slightly OTM calls on basically every common stock I've looked at.

e.g. OVTI MAR06 25 Call (Smart)
QLGC MAR06 42.5 Call etc.

When the market opens in a couple hours I'm sure the actual bids and asks will be 5 or 10x the model price. Actually the model price for both of those is 0. I'll try to post some other numbers once the market opens.

 

[MTE]

The model is only as good as the inputs that you use, so in this case the only important variable that is unknown is Volatility.

The theo values depend on volatility so tweak the volatility, or at least find out what volatility is used in the model.

 

[luh3417]

For example:

QLGC MAR06 42.5 Call
Bid: .60
Ask: .70
Model: 0.09

You're right, if I change the volatity to 2.4, the model price goes to 0.96.

Where does TWS get its volatilities... and where should I...?

For that matter, I'm not entirely sure what that number means, is it one standard deviation for the stock's price over a certain period of time?

 

[MTE]

Quote from luh3417:

For example:

QLGC MAR06 42.5 Call
Bid: .60
Ask: .70
Model: 0.09

You're right, if I change the volatity to 2.4, the model price goes to 0.96.

Where does TWS get its volatilities... and where should I...?

For that matter, I'm not entirely sure what that number means, is it one standard deviation for the stock's price over a certain period of time?

Can't help you there, I don't use IB so have no idea where the volatility comes from, but I'm sure someone here will be able to clear that up for you, or maybe contact IB directly or PM "def" who is IB's representative here.