Black-Scholes Model

What is the reasonable price we should pay for an option? We can do this using the Black-Scholes Model and the Options Calculator!

The Black-Scholes Model is used to determine an option’s price:
1. based on a mathematical model
2. developed in 1973 by Fischer Black and Myron Scholes
3. makes simple assumptions about the market economics
4. has become industry standard

We can download Options Calculator from the internet. Type into Google box "options calculator". 

The Options Calculator is based on the Black-Scholes Model. We use this to calculate the Theorectical Option Price based on the following parameters: 
1. Stock Price,
2. Strike Price, 
3. Expiration Date,
4. Volatility, and
5. Interest Rates

The Options Calculator will also provide us the Greeks as corresponding outputs:
1. Delta – Sensitivity of Options Price to the Underlying Stock Price
2. Gamma – Second Order Sensitivity of Options Price to the Underlying Stock Price
3. Theta – Sensitivity of the Options Price to the Passage of Time
4. Vega – Sensitivity of the Option’s Price to Volatility
5. Rho – Sensitivity of the Option’s Price to Interest Rate

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