Options Calculator

Hi,

I need help with Options calculator.
Please see the attached image.

I would like to know what is

* stk. price
* Spot Price
* Interest Rate
* Div. Yield
* Volatility

* I hope number of days is the days in which the option is going to expire
* I hope Premium is the amount which i pay to buy the options.

What are these? Delta, Gamma, Theta, Vega, Rho

Can you please give me an example with NSE (Nifty 50)?

Thanks in advance

* stk. price
Strike price is exercise price of the underlying. To put it other way, the strike price is the price which you believe that the underlying will reach and go above, so your profit will start only after the spot price reaches the strike price. 5200 is strike price in this example.

* Spot Price
The prevailing market price of the underlying NIFTY/stock.

* Interest Rate
Risk free interest you would earn if you have invested in an instrument which is risk free. Generally it is fix deposit interest which is considered as Risk Free. Concept here is that if you are earning 6% return without taking any risk, then the return should be good enough to allow you to worth the risk your taking for buying the option instrument.

* Div. Yield
If underlying stock is paying dividend in the month which you are trading then Div. Yield is to be considered in the formula, as the dividend pay out will effect the stock price. In index options it is always 0.

* Volatility/Premium
While calculating option price, either you enter prevailing premium of the selected or you enter volatility of the selected option. If you enter prevailing premium the calculator will calculate volatility. And if you know volatility of the selected option , the calculator will calculate the option premium for you.
Here in the example ask price of the 5200 option Rs.31-50 is entered.

* I hope number of days is the days in which the option is going to expire
Yes

* I hope Premium is the amount which i pay to buy the options.
Premium as explained above if calculate it will allow to know what would be the fair premium of the selected option and you can compare with the actual premium prevailing in the market

*What are these? Delta, Gamma, Theta, Vega, Rho
These are options Greeks. However I would suggest that you search in Google for "Option Greeks" to get the idea on each of these Greeks, as it is also difficult for me to explain each one. Following are few useful links..

http://www.theoptionsguide.com/the-greeks.aspx

http://www.investopedia.com/articles/optioninvestor/04/121604.asp

I am also learning option trading, therefore I would also request the seniors to correct me if wrong.

Hi,

Thanks for this info and links.
I have one more question.

"RBI raises CRR by 75bps to 5.75%" I saw this in tv now.
Will it affect share market? Will it send Nifty further down?

Each piece of event/news/circumstance related to economy may effect the market, but how and at what at magnitude it will effect the stock market, is everybody's own call.

Here despite CRR raise, the market has not responded negativity, perhaps because the market might have already discounted the news in recent fall or perhaps the hike is lesser then the market expected.

In my view. Effect of this type of Macro-econmic event don't take place on very next bar. It takes time to pan out.

Even if it has -ive effect, are daytrader/swing trader going to take only short trade now ? And if big elephants on mkt, fund house etc have to react to it.. then do u think they take the decision no the fly by 1 event ?

IMO, Though CRR hike may suck some liquidity cause banks need to part extra funds with RBI.. there is enough of other liquidity available which is waiting for more strong news on economy. If RBI has hiked interest rate , then it would have wider impact on economy.. And at this stage, they could not take that decision on wider economy.
My reading between the lines is RBI is still not sure if economic recovery is sustainable so adopted wait-and-watch approach for next 3 months.

Happy Trading

If you have noticed interest rate decisions never come in the quarterly review. They are generally announced in between reviews. Most times the quarterly review though hyped by the media, turns out to be a non event as far as markets are concerned. But all of us forget what happened during the last review and eagerly look at next review for some news.

TT, these are just 2 releases from same RBI.. Do you think they will publish detailed quarterly review next month (GDP review is due on 26-Feb) and that will be too far away from what they said today.

It is just that quarterly report is pretty detailed one and helps in understanding far more about what is going on at macro level.

Their report goes to IMF as well so they need to make sure that all messages are consistent.. And I am sure it is just not next 1 month, probably they know very well where we are heading and how to disclose or mask the info. There are real brainy people running RBI.. And I have all respect from them. At the same time, they have not reached to top of organisation ladder i.e. RBI without attaining the smartness in communication skills.

I am too naive in front of them to understand macro-economics... but learning to pickup threads on that front and surprised with my findings on how media handles these numbers...

Happy Trading

AW10, Media is always alarmist. The picture painted today as the news came out was that it was a massive disaster. The market has more maturity than the media. As far as trading is concerned, I have learnt, Never to fight the Central Bankers. The market will go where they want it to go.

ha ha ha.. TT. and mkt went up on such disaster news. Lets see how they change the headline tomorrow. For me, media headlines are always big joke.. and I wait for next headling where they change their tone.

Anyway, as a traders, we know very well what to take from them and what to discard.

Happy Trading