Using The CBOE Calculator-It’s a Bit Clunky But Worth It

Terrapin Trader

http://www.ivolatility.com/calc/

Following an enquiry about the calculator, from the above link,we click on the BASIC calculator. It defaults to MSFT. Our index options are European style-the first dropdown, top left.  For FTSE we can only put in the price, not the ticker,or EPIC so the price at close on Friday- 6775.   We know the strike of the call we are using the  7000 strike.                                                                                                                                              Next, the expiry date, and the dropdown here will allow you to go to 16th Dec,our expiry date ( it also permits weekly expiries).  From the price of FTSE and the strike price of the option(18.5) and the expiry date, the only other metric we need to change is the interest rate=0.25% for the UK. We then click on the adjacent ‘calculate’ button, and get a random price.                                                                                       Next- under the Implied Volatility (bottom right hand side ) you can enter the price of the option-which we already know, select put or call (dropdown) and then it will generate the implied volatility.                                                                                      Now input the implied vol just calculated into volatility% (6th box down on the left) and click on adjacent ‘calculate’button. This will give you the Greeks. Sorry it’s a bit long winded, I reckon anything worth having requires a little attention.             The result from Trade 7 for the 7000 call:STEP 1 below, and STEP2 below that. Note: no dividends are paid with the index, I just clear that box.

step-1step2

S

Published by Terrapin Trader

First found out about options in 1995.From the arcane magazine Exchange and Mart! First trade- a covered call on VOD in 1999. Made 10%,VOD almost doubled. That's when I realised I was not a good trader,and I was forgiven thanks to the amazing world of exchange traded options

3 Comments

  1. If anyone is having difficulty using the calculator please let us know-we can, at the moment, answer each enquiry individually and the aim is not to look clever (trust me that ain’t on the cards) but to give you a head start in your trading journey. There are NO stupid questions.
    When I started trading there was nothing like this- but when you see how the options business has grown in the US you have to question what the heck is going on in the UK.
    I might be tempted to say vested interest but I have no desire to create enemies, so let’s say that the financial establishment assumes we are all too stupid to trade financial products-and that applies across the board. The US looks more kindly on its retail traders.

  2. Thanks for this helpful explanation. I am really enjoying your series of articles – it is the principles that are most useful for beginners. Please do not be put off by the unduly harsh criticism of others.

  3. Thanks Richard- I’m just a regular bloke with 3 ‘O’ levels and no background in finance or accounting,but I’m still a reasonable guitar player!

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