How to calculate Option Price

F&O
1

Hello,
Can some1 tell me if there is a way to calculate what will be the option price if stock moves by x Rs. I am aware about the Black Scholes calculator available on zerodha, but if I keep changing Spot price keeping Strike price constant, will it give me a rough idea on the option pricing? Also how do i input Implied Volatility for the same ?

(Can I keep modifying spot price as possible future price to check the effect on the option price, or this wont work? )

Thanks

2

Well, if you want to calculate the theoretical price of an option based on the spot price, then you have to use the B&S calculator itself.

Quoting from Varsity:

"The framework for the BS calculator pricing model works like this:

  1. We input the model with Spot price, Strike price, Interest rate, Implied volatility, Dividend, and Number of days to expiry
  2. The pricing model churns out the required mathematical calculation and gives out a bunch of outputs
  3. The output includes all the Option Greeks and the theoretical price of the call and put option for the strike selected"

“Volatility – This is where you need to enter the option’s implied volatility. You can always look at the option chain provided by NSE to extract the implied volatility data. For example, here is the snap shot of ICICI Bank’s 280 CE, and as we can see, the IV for this contract is 43.55%.”

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image1006×534 79 KB

So yes, you can change the spot price to whatever price you want and find the theoretical price of the option. You can enter 2 different spot prices and calculate the change in the theoretical vallue which will give you the change in option price if the stock moves by X.

Everything masterfully explained on the below link:

1 Like
3

Thanks have gone through the same, Just to confirm my understanding, in the calculator, I need not restrict myself to putting Spot price of the share right? Say i selected strike price of 100, and i want to know what will be the option price when the share price moves from 95 to say 110, so can i enter my future predicted share price in this case 110 and strike price of 100, to get an idea about the impact on the option pricing?

4

Yes, you can enter your future predicted price of 110 as the spot price in the calculator to find the option price. That’s the point of the calculator, where you can enter different spot prices and calculate its corresponding option price.

5

Great. Thank you. But I still have a doubt, for a X stock I entered certain details, I got call option delta as 0.106
So i assume a 10 rs rise in share price, so my all option price should rise by 0.106 * 10 = 1.06 right?
But when i re-entered my spot price as my predicted spot price by increase share price by 10, i got the call option premium which was greater by Rs 1.92, why wasnt it close to an increase of Rs 1.06

Kindly assist where am i thinking wrong? Thanks

1 Like
6

Hi @gautamb17, did you find any answer anywhere of this 4 years old question? Tell me as well if you got it or source