The Theoretical View is a view of the Calls and Puts Option Chains. It allows you to select a Greek model and make changes to the different parameters that affect option pricing as calculated in that model in order to see how those changes would affect the prices and Greeks of the options in that chain.
| Inputs | |
|---|---|
| Greek Model | The Greek models available in other areas of the application are also available here. Choose between Black-Scholes, Barone-Adesi-Whaley, and Cox-Ross Rubenstein. |
| Price Chg | Allows you to enter a change amount for the stock price used in the Greek model, as a positive or negative number. If you would like to see how the model predicts values if the stock is up 5 points, enter 5. If you would like to see how the model reacts if the stock is down 5 points, enter -5. Prices can be entered to two decimal places. |
| Days Past | Enter the number of days to pass. This value will apply to the whole chain, so if you enter 3 days past, the model will predict the value for each option as if 3 days have elapsed. |
| IV Chg | Enter the amount of the Implied Volatility change in the stock. If you want to see how the model reacts if the IV changes by 10% or -10%, enter 10 or -10 in the IV Chg input. |
| % Int | This represents the risk free interest rate used in the calculations, and defaults to the current $IRX (CBOE 13 week treasury bill index. The $IRX value is divided by 10 to be expressed as an interest rate %) |
| Div Yield |
This Input assumes a continuous dividend over the life of the options being priced, so a 5% yield would assume an annual dividend of 5% that would pay daily. It defaults to the actual dividend yield paid over the last year for that stock. TIP: If you are not expecting a dividend payment during the life of the option, you can set this to 0. |
| Output Columns | |
|---|---|
| Theo Value | Shows the theoretical value of the option as a result of the changes to the inputs. This could be thought of as a theoretical Midpoint price. |
| Theo Delta | Shows the Delta after the input changes are taken into account. This represents the expected change in value for that option for the next 1 point change in the Underlying price, based on the values calculated. |
| Theo Gamma | Shows the Gamma after the input changes are taken into account. This represents the expected change in Delta for the next 1 point change in underlying value |
| Theo Rho | Shows the Rho after the input changes are taken into account. This represents the change in option value for the next 1 point change in interest rates. |
| Theo Theta | Shows the Theta after the input changes are taken into account. This represents the change in option value for the next day passing. |
| Theo Vega | Shows the Vega after the input changes are taken into account. This represents the change in option value for the next point increase in Implied Volatility. |
| Theo IV | This shows the Implied Volatility for each option as it is used in the calculations. It takes the IV Chg amount and adds or subtracts from the current IV value. |
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. Please read the options disclosure document titled "Characteristics and Risks of Standardized Options." Supporting documentation for any claims or statistical information is available upon request.