An option is a contract that gives the owner the right to buy (a call option) or the right to sell (a put option) a security at a stated price. This stated price is known as the "strike price". An equity option is a contract to buy or sell shares of stock. Option contracts have an expiration date. That is, the owner of the contract can only exercise his option to buy or sell the underlying security before or on the contract's expiration date.
An options calculator calculates a theoretical price for an option (as well as a number of other attributes).
American style options can be exercised at any time. (See the European Option Calculator for options that can only be exercised on the expiration date.)
Because American style options can be exercised prior to expiration, we use a Binomial model to arrive at the price of the option. A Binomial model allows us to evaluate the option at discrete-time intervals. This model is generally considered more accurate than the other commonly used model known as Black Sholes.
SolveIT!'s option pricing calculator can be used to calculate the call price, put price, gamma, delta, theta, and vega. The implied volatility can be calculated with data seamlessly imported from Yahoo Finance. The calculator gives you the option to select from two pricing model, either Black-Scholes Option price or the Binomial American option price.
You may see the screen shot for other details about this calculator by passing your mouse over the screen image to the upper right.
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