Is Premium/Spot any useful metric?
- Thread starter thecoder
- Start date
IMV, "no".
It can be useful to get a feel for what the option price might be for extreme moves if you are long / short OTM options. I have a little 'ready-reckoner' that you might find useful
@jamesbp, can you please post an example on how to interpret/read this table. Thx
Update/Edit: OK, got it finally. For instance this example: Assuming Spot=$100, DTE=365d, IV=30% Strike=ATM=Spot=$100 --> Call=Put=$11.92, and this is in the table stated roughly as 12%, ie. rounded to nearest integer or so, I think.
Calculated the ATM premium using this online options calculator: https://optioncreator.com/options-calculator
Update/Edit: OK, got it finally. For instance this example: Assuming Spot=$100, DTE=365d, IV=30% Strike=ATM=Spot=$100 --> Call=Put=$11.92, and this is in the table stated roughly as 12%, ie. rounded to nearest integer or so, I think.
Calculated the ATM premium using this online options calculator: https://optioncreator.com/options-calculator
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You got it ... there will be minor differences if you use an option model as I used Vol x Sqrt(DTE/365) X 0.40 as approximation ( x 0.3989 to be more precise : 1/Sqrt(2pi) )
Yes, but if you trade OTM options ... and and want an estimate of what the price might be if option becomes ATM under high vols etc ... quick and dirty way to look at convexity exposure
Ah, all right. Thx^2
Yes check out black scholes approximation for near ATM options. Dude I thought you cracked the Black Scholes formula and you just have to deploy the new Option pricing model to change the world.