Option Evaluator Entries - Explanations

To Option Evaluator

• General Information:

1. Start Date: normally today, can be any day . Should be before Expiration Dates. format: 12/31/96
2. Risk Free %: the fed funds rate in %. format:: 5% = 5

• Option Positions and Options Characteristics: (2 options allowed)
  1. Position: the number of option contracts, used for forecasting Profit and Loss (P&L). format: 10.00
  2. Expiry Date: the expiration date of the option. format: 12/31/96
  3. Strike: the Strike price of the option in decimal format. format: 100.00
  4. (Calculate) & Option Type: select option type Put or Call. Calculate button will calculate either Option value or Implied volatility, depending on whether you last visited the Value or Volatility cell.
  5. Value: enter option market price in decimal format to calculate the implied volatility, and set the stage for doing a forecast matrix. The calculated value will be filled in if you enter volatility. see 6. below. This value will be automatically calculated when volatility is entered and the [tab] key pressed. format: 3.25
  6. Volatility %: enter the volatility, if known to calculate the option value. This value will be calculated when an option value is entered. This value will be automatically calculated when option value is entered and the [tab] key is pressed. format: 15.5 for 15.5%
  7. Delta: the underlying equivalent for the option position. If the delta is .5 then the option will move 50% of what the underlyings price moves. If the delta is -.5 then the option will move 50% of what the underlyings price will move but in the opposite direction. This is a calculated value only. Note that the delta changes for every move in the underlying market. The user should change the market price of the underlying so he can get a feel for how much the delta changes. It is more sensitive as you approach expiration.

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• Underlying Instrument Position and Properties:
  1. Position: the number of shares (equities) or contracts (futures), used for forecasting P&L. format: 10
  2. Futures Type: the type of future in question. This is used to caluclate the dollar value of a contract.
  3. Current Market: current market price of the instrument. format 100.00
  4. Dividend (%): (not relevant to futures) the dividend rate of the stock or index. This is an important value that is needed for accurate option calculations. If it is not known the values become less valuable, however the forecast matrix will still give you a good feel for the risk you are taking. If you are unsure of the dividend, always calcuate the implied volatility from the option value first. format: 1.8
  5. Underlying Type: Either Equity, Future, or Rate for either Eurodollar or Fed Funds Futures.
• Matrix/Graph Forecast Preferences: This function will generate a forecast with a range of prices on the vertical axis and a 5 dates between now and expiration on the horizontal axis. Start Date and Expiration Dates will allways be the first and last dates, and then 3 evenly spaced dates between. The graph will put price on the horizontal axis and P and L on the vertical axis.
  1. Have Matrix/Graph Forecast: This tells the program to generate a matrix of either future option values or Profit and loss from the positions entered. A graph of the Profit and Loss profile can also be created.
  2. Create: the user can either generate a matrix for option postion 1, option position 2, or both option positions combined with an underlying position. This way, you can look at spreads as well as outright positions. If Graph is chosen in the "Output" dropdown, a graph can be generated for P and L.
  3. Table Increments: The increments you want used to generate the prices used to calculate the matrix or graph. If you choose 2, with a market price of par, then the matrix/graph will generate values for 96,98,100,102, and 104.
  4. Output: If Matrix is selected (default) a matrix of values is created. If Graph is selected, a graph will be generated for Java enabled browsers. Internet Explorer 3.0 or greater and Netscape Navigator 2.0 or greater, should work. Let us know, if you have a problem - webmaster@usefultech.com.

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For a General Overview on How to use The Evaluator

Option Evaluator