To learn more about options, check out this module on Varsity. In the second post, we discussed the practical Application of Option Greeks with respect to options trading. In this concluding post, we will understand the usage of an option calculator. An option calculator is a tool which helps you calculate the Greeks, i.
This is probably the most revered valuation model in Economics, so much so that its publishers Robert C. Once these inputs are fed to Black-Scholes option pricing model, the model churns out the math to give us the required output. The logic on which Black-Scholes model works is quant heavy involving concepts of stochastic calculus. Along with the Greeks, the output includes either the implied volatility of the underlying or the theoretical option price.
The top section highlighted in blue is used to select the option contract, this is fairly straightforward. The left section highlighted in red is the input field. Let us look into this. At this stage you need to decide what the option calculator should calculate for you.
Also, in case dividends are expected within the expiry of the contract, make sure you enter the ex-dividend date. The last input field is the number of days left to expiry. Input the total number of calendar days here. It is worth mentioning that the difference in output values between the two models is not really much. Lastly, look at the bottom section of the Output field highlighted in green.
Select Volatility if you want the option calculator to calculate the volatility for you. Once the input values are loaded, click Calculate to generate the output.
The following image shows the output:. The first field in the output field is the theoretical option price also called the fair value of the call and put option. The calculator is suggesting the fair value of call option should be However, the call option value as seen on the NSE option chain is The difference, though not significant, mainly occurs due to factors such as wrong volatility assumptions, bid-ask spread, liquidity, transaction charges, and taxes.
Following the theoretical option price you can find the data on Greek values. As of today Nifty spot is , and the closest ATM option is As we had discussed in the previous post, the ATM option should have a delta of approximately 0. In fact, the calculator is telling us that the delta is 0.
This is in line with our discussion on delta in the previous post. Let us now use the option calculator to calculate the volatility of the underlying. It turns out that the volatility of Nifty is Well, the difference is less than 50 basis points; this should also explain why the calculator calculated the Theoretical Option Price as In fact, instead of See the image below:.
Option calculators are mainly used to calculate the option Greeks, volatility of the underlying, and the theoretical option price. Sometimes small differences arise owing to variations in input assumptions.
Hence for this reason, it is good to have room for the inevitable modeling errors. However, by and large, the option calculators are fairly accurate.
I've been trading and investing in the Indian markets for over a decade. I strongly believe that trading is not a gift that you are born with but a skill that you can develop over time. There is an option available already, please visit trade. See the following image:. I just double checked on version 3. Are you sure you are giving the right inputs? Very useful post and I m learning a lot. I m trying to utilize the calculator in zerodha trader but nothing calculated.
I m using 3. The Option Calculator on Zerodha Trader usually works, but there may have been some update issue which is causing this. Have sent you and email requesting you for your contact details. Have filled in below: The values calculated from the zerodha calculator do not match the market values of the options. The calculated prices are comparatively inflated using the formula. See the image below, I have given the same input and I got the same result as in Zerodha Trader.
Please do let me know if you have queries. Thanks for your kind response. The difference I noticed was for Nifty and BankNifty spot prices on the reference site: Kindly request you to check for Nifty or BankNifty the difference becomes much bigger on both the calculators. Where can I find Dividend value for Nifty.
Does it change every month Where can I find Dividend Value for Particular stock — eg — Infy — does it change every month. For individual stocks, you need to keep track on their corporate announcements. Suggest you try moneycontrol for the same. Yes, Dividends do play an important role, you need to include the dividend amount and the ex divided date in the calculator. It would be a bit tricky for Nifty Options as Nifty is an Index and quantifying the effect of dividend is quite difficult.
For this reason I personally prefer to set the dividend value to zero. However for stock specific options, this should be simple. Karthik, Will the option calculator work only during the Trading hours? I checked now in Web Login, the Opt Calc link what you have shown in the picture above. It says No data as result. Just wanted to know — is it safe to assume that the Delta for a futures contract is always 1? One more question — I see that the delta of a put is always much lower than the call at the same strike price.
Usually the delta of a put is half that of a call option. Is there anything wrong in my calculation or is this how it is meant to be?
Is there any reason for such disparity in delta of call and put options? However the deltas vary as and when the spot moves. On a related note, you may also want to check on the put call parity of options. The inputs seems to be fine.
I have fwd your query a colleague of mine, you should get a response soon. Please check the attached file. All settings are as per your instructions.
But still it is not working. Also the IV values in option chain. What is the margin requirement in commodities trading? Sukesh, only futures in commodities trading. Margin requirements are quite less as compared to equity future contracts.
Check this and this. Commodity markets are open from 10am to Thanks for the quick response. Commodities trade internationally, even though by the time Indian markets open at 10 am most of asia has already opened. This lets the Indian trader react to news that can affect his position for most part of the day. This is the best historical info that you can get —. The Zerodha Trader application works fine on a computer which is connected directly to the internet. But if a computer system is connected to the internet via a proxy server it failed to work.
I had a first hand experience on this. Can you resolve this problem? The thing is when you use a proxy server on your web browser, it goes through that. To change proxy server settings Open Internet Explorer by clicking the Start button. Click the Tools button, and then click Internet Options.
Click the Connections tab, and then click LAN settings. Select the Use a proxy server for your LAN check box.More...