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Spread Option Calculator


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All of these functions return an array containing the premium and the Greeks. These functions have been tested for accuracy within an allowable range of inputs (see “Model Input” section below). However, general modeling advice applies to the use of the model.

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  • While these formulas may look complicated at first glance, most of the terms can be found as part of an options contract or are prices readily available in the market.
  • In contrast, if the LIBOR curve is used, the bond is compared to the funding curve as LIBOR represents the funding cost in the market.

Any opinions expressed herein are subject to without notice. Supporting documentation for any claims or statistical information is available upon request. The volatility of volatility, or VVIX, can be helpful to add to your watchlist. Learn how the VVIX can help inform strategy decisions in VIX options. Trading and investment decisions should not be based solely upon values or calculations generated by the Trade & Probability Calculator. These probability calculations will change if you alter the lower and upper targets by either moving the slider bars with your mouse or by typing in specific values for the lower target and upper target.

Short Call

Tapping on the strategy brings up a quick edit menu instead of the P/L table. There should be an edit button next to the leg tile and tapping on the tile should open the P/L table. The all important PL table is nestled in a very small button in the upper right. This update also includes various bug fixes and improvements. For this reason, it is a good way for those who wish to dabble in trading shorts but who are not yet confident of their abilities and can prove to be a stepping stone for shorting other stocks and commodities.

In this example, the conversion cost, which might be called the Variable Operations and Maintenance for a generation unit, would represent the strike price. A call spread strategy consists in buying and selling a same quantity of calls but with a different strike price. As a result, both downside and upside are limited, thus providing a good risk profile. While the upside is limited, unlike a long call/put strategy, it costs less to initiate a position. If your strategy turns a profit with a spot price increase, then it is called a bull call spread. If your strategy turns a profit with a declining spot price, then it is called a bear call spread.

profit or loss

For that purpose the partial derivatives of option value by any of three variables may be required to apply Newton’s equation solver, for instance. That also implies that some Greeks can be calculated by the corresponding BS formulas. The interest rate curve can be treasury curve or LIBOR curve. If the treasury curve is used for discountig, the bond performance is bencharked to Treasuries. In contrast, if the LIBOR curve is used, the bond is compared to the funding curve as LIBOR represents the funding cost in the market.

Stock Option Calculators

Want to calculate potential profit and loss levels on an options strategy? A simple bullish strategy for beginners that can yield big rewards. A call gives the buyer the right, but not the obligation, to buy the underlying stock at strike price A. However, you can simply buy and sell a call before it expires to profit off the price change. The long put has a higher premium to pay in the bear put spread, whereas the short put will have a lower premium to collect. Consequently, you will have a debit spread option strategy.

While and loss calculations assume that option positions will be held until expiration, you can usually close long- or short-option positions prior to expiration by buying or selling them in the market. In Figure 5, if you zoom in on the distribution curve, you can choose a closer date for the “Probability” calculation . This is helpful because it separates the visual profit and loss lines for the various dates. This will also cause the probability calculations to be oriented to the new date you selected rather than the option’s expiration date, which is the default setting. Discounted Cash FlowsDiscounted cash flow analysis is a method of analyzing the present value of a company, investment, or cash flow by adjusting future cash flows to the time value of money. A butterfly spread is a financial strategy that combines both bull and bear spreads together to create an investment that has a fixed risk but also a maximum profit.

While the possibility of getting the stock 3 cents cheaper is offset by the risk that it may move up in price, you can always change your bid price if required. At least you will not be buying the stock at $10.05 because you entered a market order and the stock moved up in the interim. The bid-ask spread is the difference between the bid price for a security and its ask price. It represents the difference between the highest price a buyer is willing to pay for a security and the lowest price a seller is willing to accept. A transaction occurs when a buyer either accepts the ask price or a seller takes the bid price.

Currency Converter Calculate the foreign exchange rates of major FX currency pairs. Experienced traders love our Advantage account with spreads from zero, super-low commissions, and lightning-fast execution. Such information may be collected in a manner that the client is always aware of the collection and purported usage of the same. The client shall have an option to withdraw consent to share the information.

Data Not Linked to You

For example, in a heat rate option, the option represents the ability to convert fuel into electricity. The price of the first asset, electricity, might be quoted in US dollars per megawatt-hour or USD/MWH. However, the price of the second asset might be quoted in USD/MMBTU. To use the approximation, it is necessary to convert the price of the second asset into the units of the first asset (See Example 1 – a Heat Rate Option). This conversion rate will typically be specified as part of the contract.

The following example outlines how to calculate the maximum profit of a long butterfly spread. Before being placed into a spread option model, the price of natural gas would need to be converted into the correct units. SymbolMeaningVaAsian Adjusted Volatility, This will replace the volatility term in the GBS equations shown previously.TTime to expiration. The time to expiration of the option .t_aTime to start of averaging period. Profit Calculator was created out of pure need for a comprehensible and uncomplicated way to build options strategies on the go. Scan the entire option chain based on your expected move in the underlying and initial outlay to filter out uninteresting and irrelevant options. From beginner options traders who are just starting out to professionals with years of experience, Options Profit Calculator can offer convenience to your trading workflow. The first element of the array is the value of the option, the other elements are the Greeks which measure the sensitivity of the option to changes in inputs.

Commissions, taxes, and transaction costs are not included in this discussion but can affect final outcome and should be considered. Please contact a tax advisor for the tax implications involved in these strategies. Learn about the risk of the iron condor pin, why it happens, and what traders can do to best avoid a naked short at expiration.


The software in this model is intended to price particular types of financial products called “options”. These are a common type of financial product and fall into the category of “financial derivative”. This documentation assumes that the reader is already familiar with options terminology. The models are largely variations of the Black Scholes Merton option framework (collectively called “Black Scholes Genre” or “Generalized Black Scholes”) that are used to price European options .

Just getting started with options?

This ratio can then be converted into a formula very similar to the Generalized Black Scholes formulas. In fact, this is the Black Scholes formula shown above with the addition of a (F_2 + X) term . Analytic formulas similar to the Black Scholes equation are commonly used to value commodity spread options.

View potential profit for any options strategy.

Here you will have to sell a call option with a lower strike price and to buy a call option with a higher strike price. The formulas explained below are precisely those used by our options spread calculator. For example, if the prevailing price of a security you wish to buy is $9.95 / $10, you could consider bidding $9.97 for it rather than buying the stock at $10.



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