Yes, sure is a formula. Many of them. I like Black-Scholes. There a a number of modeling tools out there, but I use the one at www.cboe.com for ease of use and simplicity. Play with this:
cboe.com:80/equity/calculator.html
The most important determinant of option price is the stocks volatility. This is somewhat subjective (and traders closely guard their volatility figure and decisions about each stock) but mathematically derived from the daily price changes, and magnitudes with additional "fudge". You can "reverse figure" the volatility from the current option price (if you do this you call it "implied" volatility).
The option premium typically won't be based on the stock price, but on the volatility that stock exhibits in it's daily trading pattern. Kinda like BB stuff.
I typically expect more return than your table suggests for over 4 weeks. As I mentioned on SD thread, I look for about 15% in four weeks. Gotta look hard, but opportunities are there.
Hope you have fun with the option calculator. I have had very good luck with the calculator to find small differences in pricing vs theoretical values (mostly no more than 1/8's). Then I find that I can SELL overpriced options, and BUY underpriced one. You have to be quick, and you can sometimes get a better deal as people "hug" or choke up to the other side of normally 1/4 point wide spreads.
As well, we already discussed that the MM fall "asleep" and don't move the option prices as quickly as they should based on the stock movement. If you do a little DD, you can use the option modeler to tell you the delta and gamma, and compare this to how the option actually moves.
I've found these guys fall asleep alot <ggg>.
Regards, |
