Use The CBOE’s Options
Analysis Calculator — Gratis by Rudy Teseo
Here’s how to use the free option calculator offered by the Chicago Board Options Exchange to set up your positions.
Option strategy diagrams are the standards used in the
industry to represent the curves developed in the
Black-Scholes †options model. The Black-Scholes
model is actually a mathematical formula that was
developed in the early 1970s for calculating a fair
option price, and it is still the accepted standard used today. You can get an excellent model of these computations, free
of charge, on a compact disc from the Chicago Board Options
Exchange (CBOE). This CD also contains a complete course in
In the CBOE model, you enter the required variables (current stock price, strike price, time to expiration, implied
volatility, and current risk-free interest rate), and the model then
presents a graphic display of the strategy that allows you to theorize
by changing the variables.
Here’s how to use this little treasure.
1 Think about having to memorize all those option definitions,
and then see if a simple diagram couldn’t tell you the same thing
in a single glance. Cost/profit curves display the relationship between the price of the option (the premium paid or received) and
the price of the underlying security (Figure 1). You can readily
visualize the option price increasing and decreasing in value as the
security price increases and decreases, respectively. You can also
tell at a glance the risk/reward potential of this strategy.