The Black Scholes formula is widely used for determining the value of an option. It helps traders and estimate the likelihood that the asset price will be above or below the strike price. The 'strike price' is the price that the trade will take place at if the holder 'exercises' the option
Hit '>Play' above to see how option prices vary with volatility, underlying price and time to maturity
The formula relies on multiple factors to calculate the value of an option. Two key factors are volatility and time to maturity.
Volatility is a measure of how much the asset price moves up and down over a period of time. The more volatile the asset, the higher the estimated value of the option.
Time to maturity is the length of time until the option expires. The longer the time to maturity, the higher the estimated value of the option.
In taking these factors in to account the Black Scholes formula calculates the estimated value of an option, helping investors and risk managers make informed trading decisions.
Soundtrack: 'Cosmic Bloom',. Available under creative commons non-commercial, no derivatives license (c) Ketsa https://freemusicarchive.org/music/Ke...
This is not investment advice. Lucidate is not an investment advisor. Options prices can rise and fall. Always consult with a regulated financial adviser before making investment decisions