April 1, 2011 3:07 pm

Option Calculator


An option calculator does not tell an investor whether or not to invest in a particular option. Rather, an option calculator will calculate values related to specific options so that the investor can make an informed decision whether or not to invest.

Many options calculators are free on the Internet for investors to use. They are a service provided by some investing websites like the website for the Chicago Board Options Exchange.

Acquiring the details about an option to determine if the option is a good investment can require a significant amount of mathematical calculations. An options calculator makes it easier for investors to gather this information.

Some online calculators require the use of Java compatible browsers. Some websites that offer free calculators for options have disclaimers for users that state that the calculator is for educational purposes only.

These calculators give investors valuable information such as the value of a call or put option. The option greeks such as Delta, Vega, Gamma, and Theta are often calculated as well. Options calculators may calculate Rho which is the rate that the options value changes with respect to the one percent change in interest rate.

Some option calculators determine the implied volatility of an option. An options calculator may analyze option combinations such as straddles, ratio spreads, synthetic calls, backspreads, or strangles. Some will calculate vertical spreads and covered calls.

Some valuable information that an investor may receive from an options calculator includes the probability of loss, the probability of profit, the maximum loss, and the maximum profit. Some will calculate the probability of the underlying asset reaching the strike price.

For information from an online calculator for options, the user must input the specific details about the option about which the user wishes to learn. The user will need to know the strike price, expiration, implied volatility, and the price of the underlying asset.

The user will also need to input the interest rate and dividends. Users need to enter the style of the option since calculations are affected by whether the option is American or European style. Some calculators will input some or all of the fields if the user enters the stock or options symbol.

Some online calculators for options show a graphing function that will display a graph of the option position. The calculators from websites may be available for use directly on the website or as a free software download.

The free calculators for options investors are a tool to help investors gather information easily about options that they are considering for investments. The calculators are not meant to determine if an option is a good investment, but the information obtained from the calculators help investors make informed decisions regarding the risk and value of an option.

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Disclaimer: The risk of loss in trading any financial vehicles such as securities, options, futures and forex can be substantial. Members must consider all relevant risk factors, including their own individual financial situation, before going into trading. Options involve risk (as in trading with any other channels) and are not suitable for all investors. See Characteristics and Risks of Standardized Options. Past results of any individual trader or trading system published by us are not indicative of future returns by that trader or system, and are not indicative of guaranteed future returns which may be realized by members.

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