Recently, I uploaded to my downloads section the Excel file I am using to calculate the fair value of Call / Put option using the Black Scholes formula.
As an option trader and a premium seller, I use this file a lot as a reference to understand the spot / time impact on my option value. To use it, you may select the graphs page where the prices and Greeks are shown:
For example, I selected the Graphs(S) tab and put in the values for an option with the strike of 100$, then, the range of 80$ – 120$ for the spot values. You may see clearly the impact of spot movement on the different outputs:
- Call price increases as the spot increases and passes the strike price vs. the put price which gradually gets smaller.
- Gamma has maximum value ATM.
- Delta reaches 0.5 / -0.5 for the call / put option ATM
- finally, Theta is at its maximum ATM.
changing the days to expiry (DTE) to a shorter value, in this case to 1, gives the following picture which resembles the values close to expiry:
- Call price decreases with time until there is no time value left.
- Gamma grows as time runs out, reaches maximum ATM.
- Delta decreases with time as there is less probability to end in ITM.
- finally, Theta decreases with time.
As a premium seller and short option trader, it’s important to know the different effects of spot and time on the option prices. Use this Excel as a tool for your trading. The other tabs shows the mathematics behind it all: