I am wanting to experiment and attempt to calculate what an option should be priced at based on the underlining stock....
I want to use spy as my underlining stock...
I have access to historical data by the tick, minute, etc for all options as well as spy... as well as the volatility of the stock.
Any suggestions...
Follow posts
swings of 2 to 3%. (both calls and puts)... What I believe you call a box... I am currently using SPY and (not connected to this thread) buying ES xx-xx's... I have been lucky to have all high's retraced at the 200 mda as well as having the low's regain back to the 200 mda..
It allows a 2k to 3k or better take a day.. (spy puts/calls) but it does get scary... It's not for the faint of heart because I might have 30K total sitting and waiting in both directions at one time.. I do not use any margin for these types of trades... Only cash... I also buy on the way down and release on the way up... It is hard to keep it in balance if I judge the swing (max) wrong... but I have the cash to buy my way out unless we loose all support.
Yet, I day trade those options using self developed indicators. I will follow your links to see what reverse engineering that I can accomplish to perform the tasks at hand... Thank you for your links...
Thanks you guys... I'll let you all know if It works out...
Using ES xx-xx'x and VIX CFE helps alot...
Have sold my puts and bought my calls earlier.. will be selling the calls here very shortly for a 10% bump today from the lows......
Got to go...
Have a good day...
How to calc the option price from the underlining symbol?
Displaying all 19 forum posts
I look forward to reading the replies from those more knowledgeable that me on this topic. But here's my take.
One of the main drivers of an option price is the Implied Volatility. IV is not a number you can look up in an almanac. It's driven by sentiment and expectations. For example, right now, Europe is adding volatility to the overall market. Next month, it might be something else.
SPY does have an advantage that most underlyings don't, the VIX. You can pull a quote for the VIX to roughly know what the IV is up to. You can calculate an expected option value that way.
One of the main drivers of an option price is the Implied Volatility. IV is not a number you can look up in an almanac. It's driven by sentiment and expectations. For example, right now, Europe is adding volatility to the overall market. Next month, it might be something else.
SPY does have an advantage that most underlyings don't, the VIX. You can pull a quote for the VIX to roughly know what the IV is up to. You can calculate an expected option value that way.
I have additional tools that allow me to look at the futures of VIX as well as the futures for ES XX-XX (sp500 futures)...
The volatility between the calls, puts, and the volume should be very helpful as well as the spreads on the futures and direction...
The volatility between the calls, puts, and the volume should be very helpful as well as the spreads on the futures and direction...
Let's focus on the BSM model - there are five/six inputs needed to calculate the price of the option - current price of the shares, strike price, time to expiration, dividends (if any), implied volatility and weather the option is a call or a put. Everything else is easy, IV - this is the volatility of the option until it expires, future volatility and nobody knows that. At the same time the option is selling in the market, it is possible to reverse the equation is calculate the IV the market thinks the option should be selling. You decide - in general if IV is less than you think it should be, long position should be preferred. If IV is higher and you think it will drop - short
There are five things...
1). The underlining stock price
2). The strike price of put or call
3). Days to expire on the put or call
4). Dividends on underlining stock
5). Implied volatility of the underlining stock as well as the volatility of the option
Is my translation the same as what you wrote there OF
1). The underlining stock price
2). The strike price of put or call
3). Days to expire on the put or call
4). Dividends on underlining stock
5). Implied volatility of the underlining stock as well as the volatility of the option
Is my translation the same as what you wrote there OF
Yes, that is Black-Scholes
Are you trying to build a "best guess" pricing model or a real mathematical model using a program like excel?
A question:
Hint: when thinking of Out of The Money (OTM) option pricing in general you have to think probabilities.
Let's say you have a stock trading at 100 and we look at the 30-day call option that is 5 points OTM, so the 105 strike 30-day call. We get a quote and it is trading for $1. If 15 days go away and the stock goes to 102.50 and all other variables like volatility stay the same. Basically the stock made half of the the move to the strike, in half the time. What is the price now? It will in theory be close to $1 - Why?
Summary:
Stock at 100 30-day 105 strike call trading at 1 Stock goes to 102.50 in 15 days Call is still at 1 - why?
Other tools and blogs on this topic:
Obviously, there is an option pricing calculator inside the TK site, it is found under the tools tab. This is a blog of mine that talks about using the option pricing calculator inside the TK site. Also, I do have more than one excel file that has a pricing model inside of it and I would be happy to email the file to you if you message me your email address.
Here is one of my favorite blogs that uses an option chain to determine prices using what the market is already giving us. It is titled "Tricks of the Option Pricing Trade".
This blog talks about the general concepts behind a pricing model.
Regards,
Brian (Og)
A question:
Hint: when thinking of Out of The Money (OTM) option pricing in general you have to think probabilities.
Let's say you have a stock trading at 100 and we look at the 30-day call option that is 5 points OTM, so the 105 strike 30-day call. We get a quote and it is trading for $1. If 15 days go away and the stock goes to 102.50 and all other variables like volatility stay the same. Basically the stock made half of the the move to the strike, in half the time. What is the price now? It will in theory be close to $1 - Why?
Summary:
Other tools and blogs on this topic:
Obviously, there is an option pricing calculator inside the TK site, it is found under the tools tab. This is a blog of mine that talks about using the option pricing calculator inside the TK site. Also, I do have more than one excel file that has a pricing model inside of it and I would be happy to email the file to you if you message me your email address.
Here is one of my favorite blogs that uses an option chain to determine prices using what the market is already giving us. It is titled "Tricks of the Option Pricing Trade".
This blog talks about the general concepts behind a pricing model.
Regards,
Brian (Og)
#5 - there is no such thing as IV of the underlying stock. Implied by what? Each option should be selling/buying with the same implied volatility but the reality is that (usually) puts are more expensive than calls - the market is more affraid of going down than up. IV could and is different between different months
Sorry - no abridged version :-)
What are you trying to do - kick the tires or try to adapt your bots for daytrading options?
Sorry - no abridged version :-)
What are you trying to do - kick the tires or try to adapt your bots for daytrading options?
Yes, I will be trading options by bot.. soon...
I develop "Bots" that execute trades. I am currently buying deep in the money and deep in the time that allows me to buy low/sell high when the volatility forcesoptionsguy said: Are you trying to build a "best guess" pricing model or a real mathematical model using a program like excel?
A question:
Hint: when thinking of Out of The Money (OTM) option pricing in general you have to think probabilities.
Let's say you have a stock trading at 100 and we look at the 30-day call option that is 5 points OTM, so the 105 strike 30-day call. We get a quote and it is trading for $1. If 15 days go away and the stock goes to 102.50 and all other variables like volatility stay the same. Basically the stock made half of the the move to the strike, in half the time. What is the price now? It will in theory be close to $1 - Why?
Summary:Stock at 100 30-day 105 strike call trading at 1 Stock goes to 102.50 in 15 days Call is still at 1 - why?
Other tools and blogs on this topic:
Obviously, there is an option pricing calculator inside the TK site, it is found under the tools tab. This is a blog of mine that talks about using the option pricing calculator inside the TK site. Also, I do have more than one excel file that has a pricing model inside of it and I would be happy to email the file to you if you message me your email address.
Here is one of my favorite blogs that uses an option chain to determine prices using what the market is already giving us. It is titled "Tricks of the Option Pricing Trade".
This blog talks about the general concepts behind a pricing model.
Regards,
Brian (Og)
swings of 2 to 3%. (both calls and puts)... What I believe you call a box... I am currently using SPY and (not connected to this thread) buying ES xx-xx's... I have been lucky to have all high's retraced at the 200 mda as well as having the low's regain back to the 200 mda..
It allows a 2k to 3k or better take a day.. (spy puts/calls) but it does get scary... It's not for the faint of heart because I might have 30K total sitting and waiting in both directions at one time.. I do not use any margin for these types of trades... Only cash... I also buy on the way down and release on the way up... It is hard to keep it in balance if I judge the swing (max) wrong... but I have the cash to buy my way out unless we loose all support.
Yet, I day trade those options using self developed indicators. I will follow your links to see what reverse engineering that I can accomplish to perform the tasks at hand... Thank you for your links...
Otter - do you care while some shares are priced at $XX.XX when you daytrade them. The same with options - if you indicators say buy the shares, you can use the call options as the instrument of the trade. Pro - less money/margin, cons - options move fractions of the underlying (aka delta), liquidity and bid/ask spread, which are OK these days if you trade liquid options
#5.. I should have said beta... A coefficient measuring a stock’s relative volatility. It is the covariance of a stock in relation to the rest of the stock market. 30 day historical volatility.OldFart said: #5 - there is no such thing as IV of the underlying stock. Implied by what? Each option should be selling/buying with the same implied volatility but the reality is that (usually) puts are more expensive than calls - the market is more affraid of going down than up. IV could and is different between different months
Sorry - no abridged version :-)
What are you trying to do - kick the tires or try to adapt your bots for daytrading options?
Thanks you guys... I'll let you all know if It works out...
I am getting a 25% return on a 2% on the underlining on SPY... It pays well and it takes far less capital to buy an option than the stock.... So, I move between puts/calls deep ITM and Time...OldFart said: Otter - do you care while some shares are priced at $XX.XX when you daytrade them. The same with options - if you indicators say buy the shares, you can use the call options as the instrument of the trade. Pro - less money/margin, cons - options move fractions of the underlying (aka delta), liquidity and bid/ask spread, which are OK these days if you trade liquid options
Using ES xx-xx'x and VIX CFE helps alot...
Have sold my puts and bought my calls earlier.. will be selling the calls here very shortly for a 10% bump today from the lows......
Got to go...
Have a good day...
just one note - beta and historic volatility is what happened in the past. IV is what will happen in the future
I would tell you to use Matlab as it has the equation built in and the ability to grab the market data (though you need the info subscription which I'm sure you already have), but it's fairly expensive. I only bought it because I get it 90% off because I have student status (still cost me about $300 for the program and the finance tool boxes), and use it to work from home.
You can also look up Octave as it's free and may have access to a library function in C or Java.
http://www.espenhaug.com/black_scholes.html
http://www.quantcode.com/modules/mydownloads/singlefile.php?lid=490
Might I add be careful about bot-trading options as I looked at doing it but the spreads and time-decay will kill you.
You can also look up Octave as it's free and may have access to a library function in C or Java.
http://www.espenhaug.com/black_scholes.html
http://www.quantcode.com/modules/mydownloads/singlefile.php?lid=490
Might I add be careful about bot-trading options as I looked at doing it but the spreads and time-decay will kill you.
otter - what options are you using to trade these? I am trying weekly ATM options, expiring tomorrow. These are true bombs - they either explode up or in you face. So far the latter for me
spy feb 17 120 call and 130 puts... been trading back and forth up to day... but... we are sideways... waiting for one to bust out...
There's a spreadsheet at the following link that automatically downloads historical close prices from Yahoo (just give it a ticker symbol) and plots the historical volatility. It's all automated.
Historical Volatility in Excel
Historical Volatility in Excel
Keep in mind: Historical Volatility and Implied Volatility are unrelated.
Historical Volatility is the calculated Standard Deviation of the underlying based on past price performance.
Implied Volatility (IV) is a measure of the expected price movement of the underlying going forward.
Tracking the relative IV movement within it's normal range would be the most useful factor in designing an option trade-bot. (in my opinion)
Historical Volatility is the calculated Standard Deviation of the underlying based on past price performance.
Implied Volatility (IV) is a measure of the expected price movement of the underlying going forward.
Tracking the relative IV movement within it's normal range would be the most useful factor in designing an option trade-bot. (in my opinion)
Displaying all 19 forum posts
You must Log In to post to this forum.
Not a member? Register Now to …
- See what other traders are doing
- Make your own trades public
- Share your thoughts on a trade
- Join or start a group
- Connect with like-minded traders
