Option Pricing and Value

Binomial Option Pricing Model

The binomial option pricing model estimates option value by modeling possible movements in the underlying asset over a series of time steps.

Black Scholes Model

The Black Scholes model is a widely known mathematical framework for estimating the theoretical value of certain options using inputs including the...

Days to Expiration

Days to expiration, commonly shortened to DTE, is the number of days remaining until an option expires.

Dividend Effect on Options

Expected dividends can affect option pricing because the underlying stock's price and the economics of holding shares versus options are influenced...

Earnings Volatility

Earnings volatility refers to the volatility priced around a company's earnings announcement and the uncertainty surrounding the market's reaction...

Event Volatility

Event volatility refers to the additional uncertainty associated with a known event that may cause a significant move in the underlying asset. Exam...

Ex Dividend Date

The ex dividend date is the date from which a stock trades without entitlement to the next declared dividend for a new purchaser, under the applica...

Expected Move

Expected move is an estimate of the magnitude of price movement that option prices imply over a specified period. It describes a range or magnitude...

Expected Range

An expected range is a price range derived from an estimate of expected movement over a specified period.

Historical Volatility

Historical volatility measures how much an asset's price has varied over a historical period using past price data.

Implied Volatility

Implied volatility is the level of volatility implied by current option prices when those prices are interpreted through an option pricing model. I...

Implied vs Realized Volatility

Implied versus realized volatility compares the volatility reflected in option prices with the volatility actually experienced by the underlying as...

Interest Rate Effect

The interest rate effect describes how changes in interest rates can influence option values through the economics incorporated into option pricing.

IV Percentile

IV Percentile measures the proportion of observations in a chosen historical period during which implied volatility was below the current level.

IV Rank

IV Rank is a metric designed to show where current implied volatility sits relative to its own historical range over a chosen lookback period. A co...

Option Pricing

Option pricing is the process of determining the value of an option based on factors including the underlying asset price, strike price, time remai...

Option Pricing Factors

Option pricing factors are the main variables that influence the theoretical and market value of an option. The major factors include: Underlying p...

Option Pricing Model

An option pricing model is a mathematical framework used to estimate an option's theoretical value based on assumptions and inputs such as the unde...

Realized Volatility

Realized volatility measures the actual variability of an asset's price over a specified period.

Risk Free Rate

The risk free rate is a theoretical reference interest rate used in financial valuation models to represent the return on an investment with minima...

Theoretical Value

Theoretical value is an estimate of what an option should be worth according to an option pricing model and its inputs.

Time Decay

Time decay describes the erosion of an option's extrinsic value as time passes, all else being equal.

Time to Expiration

Time to expiration is the amount of time remaining before an option reaches expiration.

Volatility Premium

Volatility premium is a broad term used to describe the additional value associated with volatility expectations or the difference between volatili...

Volatility Risk Premium

The volatility risk premium refers to the tendency for the volatility implied by option prices to differ from subsequently realized volatility, wit...