Free Options Pricing Spreadsheet
Here in nerd land, we believe one of the best ways to learn how options work is by seeing how changing inputs affects prices. Those inputs would include stock price, strike price, volatility, time to expiration and interest rates. By experimenting with differing scenarios, you can immediately see the results, which builds intuition about options pricing.
You’ll notice actual prices may differ from what the spreadsheet suggests. This is totally normal. Actual prices are affected by factors and forces like supply and demand, dividends and volatility skew. So, don't be concerned.
Check out the following:
A monster rally during the last couple weeks has sent the stock market soaring by 20% or so from the lows with a huge vol crush. The VIX is back below 18! If you rode the wave higher and are looking for a little bit of short delta here, then a put diagonal spread trades cheaply relative to the delta. Go long the 500 put in July, with a short put at 480 in June, which will net around 20 short delta for just a $7.85 debit.
Target (TGT) is one of the few remaining stocks with an upcoming earnings announcement. The company reports on May 21 before the market opens. The stock has been hammered — it's a couple of dollars off the 52-week low with an IVR at 72. If you think the bad news might already be baked in, then a put ratio spread plays into the upside with a wide buffer to the downside. Being long the 95 put and short 2x the 90 puts in June trades for a $1.14 credit with a breakeven down near lows.
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Michael Rechenthin, Ph.D., (aka “Dr. Data”), managing director of research and development, has 25 years of trading and markets experience. He’s known best for his weekly Cherry Picks newsletter. On Thursdays, he appears on Trades from the Research Team LIVE.
Nick Battista, tastylive director of market intelligence, has a decade of trading experience. He appears Monday-Friday on Options Trading Concepts Live. On Wednesdays, he co-hosts Johnny Trades. @tradernickybat
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Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.