Option Pricer™

The Option Pricer helps to analyze how changing market conditions might affect the price of an option by utilizing six dynamic variables: the current price of the underlying, the strike price, the time to expiration, the implied volatility, the current risk-free interest rate and the dividend yield.

Navigate to the Toolbox tab and select Option Pricer.

The Option Pricer can help you in three ways:

1. Allows you to change one variable at a time and see how the Theoretical Value of options in the chain may be affected by that adjustment.
2. Provides Greeks (Delta, Gamma, Theta, Vega, Rho) data
3. Helps to compare an option's current market price to a price based on the Historical Volatility of the underlying stock. To perform this comparison, input your volatility into the Current Implied Volatility field and click on either Calls or Puts to calculate.

How it Works

1. Enter the underlying stock symbol in the Symbol field
2. Select the Option Range, choosing between Near-The-Money, More, or All.
3. The Chain Type domain will already display Pricer, consequently no further action is required for this field.
4. Select the Expiration from the Expiration field. This menu will offer all the different expirations available.
5. Click the View Chain button.

Theoretical Option Prices

The boxes directly below the quote information contains the fields Current Implied Volatility, Stock Price, Days until expiration, Interest rates, Dividend information, and provides a choice on the type of options to be viewed, calls or puts. All of the fields will be populated with values.

IMPORTANT INFORMATION: The values are estimates and may need to be updated based on your knowledge and views of the current conditions in the marketplace.

Immediately below the Theoretical Options Price box is a chain of option quotes. The chain displays information on the type (calls or puts) of options selected. It provides the symbols, the current bid and ask price, a theoretical value based on the inputs entered in the Pricer, the open interest and the Greeks for each option strike that is available for the chosen expiration.

• The last column contains links to populate the All-In-One Trade Ticket or Trade Calculator with the relevant information. A trade screen can also be reached for the selected option by clicking on either the bid or ask price.
• Upon viewing the Theo Value column you will observe values in black and values in red. Theoretical values in black font mean the value is either equal to or between the quoted Bid/Ask for that option strike. Theoretical values in red font mean the value is either less than or greater then the quoted Bid/Ask for that option strike.

If you would like to observe the options chain with theoretical values based on your view of volatility, simply input your value in to the Current Implied Volatility field and click the Calculate button.

StreetSmart Central™ makes no investment recommendations and does not provide financial, tax or legal advice. Content and tools are provided for educational and informational purposes only. Any stock, options, or futures symbols displayed are for illustrative purposes only and are not intended to portray a recommendation to buy or sell a particular security. Products and services intended for U.S. customers and may not be available or offered in other jurisdictions.

Commissions, taxes, and transaction costs are not included in any of these strategy discussions, but can affect final outcome and should be considered. Please contact a tax advisor to discuss the tax implications of these strategies. Many of the strategies described herein require the use of a margin account. With long options, investors may lose 100% of funds invested. In-the-money long puts need to be closed out prior to expiration, since exercising them could create short stock positions.

Options carry a high level of risk and are not suitable for all investors. Certain requirements must be met to trade options through Schwab. Multiple leg options strategies will involve multiple commissions. Covered Calls provide downside protection only to the extent of the premium received and limit upside potential to the strike price plus premium received. Spread trading must be done in a margin account. Please read the options disclosure document titled "Characteristics and Risks of Standardized Options."