Get Started in Option Trading with an Option Premium Calculator
An option premium calculator estimates the fair price of an option from five inputs: the stock price, strike price, time to expiration, implied volatility, and interest rate, usually with the Black-Scholes or binomial model. It splits the premium into intrinsic value and time value and shows the Greeks, so you can compare the model price with the market price and see your maximum profit and loss before trading. MarketXLS offers an option premium calculator and Excel functions for the same calculation.
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What is the Option Premium?
The option premium is the monetary value that someone who has bought an option agreement pays to the option seller. It is the sum of intrinsic value (how far the option is in the money: stock price minus strike for a call, strike minus stock price for a put, never below zero) and time value, also called extrinsic value (the rest of the premium, which reflects time left and volatility).
Option Calculator
An option premium calculator computes the theoretical premium for calls and puts from your inputs, so you can compare it with the market price before buying or selling.
The option premium calculator takes into account a variety of factors, such as current market prices, option strategies, implied volatility, and time. It also includes the ability to view and analyze Option Greeks, which are the delta, gamma, theta, and vega measurements that indicate how an option may be affected by changes in the market.
Options Pricing and Strategies
The option calculator also helps traders understand options pricing and compare strategies. By using the software, traders can analyze different option strategies to determine which ones are better suited to their specific trading goals. They can also quickly run profit/loss projections to determine the expected return on their option purchases.
Another valuable feature of the software is the ability to accurately assess and analyze the risk associated with different options trades. This can help traders set clear risk limits and make sure they don’t take on more risk than they can handle.
Capital Management
Finally, the option premium calculator can help traders and investors practice and develop risk-controlled capital management strategies. By accurately assessing the potential losses and profits in every option agreement, investors can understand the risks associated with different strategies and develop sound capital management strategies for their portfolios.
MarketXLS
MarketXLS offers an option premium calculator that calculates premiums and Option Greeks, and in Excel, functions such as =opt_Delta() and =QM_GetOptionChain() return Greeks and chain data. This is educational content, not investment advice.
Click here to find out more about MarketXLS’ Option Premium Calculator .
Find out more about our Binomial Option Pricing Model Excel tool here .
Here are some templates that you can use to create your own models
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Relevant blogs that you can read to learn more about the topic
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How Are Options Priced?
