Frequently asked questions
How do I use this calculator?
Please view the 5-minute tutorial on how to make a basic calculation.
What formula is used for estimates?
The website uses the Black-Scholes formula to estimate returns at a range of dates and potential underlying prices. The estimations are based on implied volatility which is calculated from the current price of the selected options and the current price of the underlying stock or ETF.
For strategies employing multiple options, the estimated price of each option is calculated individually and combined to give gross profit or loss. The overall P/L for any given point in time and price is the exit value less the total entry value, which is calculated using the prices you enter or select.
What are the limitations of the calculator?
- The largest unknown in the Black-Scholes formula, and any other pricing method, is the Implied Volatility. Given a constant IV, the calculator will be correct in it's price estimation, however since IV is a reflection of market sentiment and external variables, it is impossible to predict what people will be thinking in the future.
- The bid/ask spread is not taking into consideration. The purchase price you enter is used to calculate the implied volatility, as this is the agreed value of the option at the time of the trade. The calculated value of each option is not altered based on the current bid/ask spread.
- Any brokerage fees you may incur are not included in the calculation.
Where does the pricing information come from?
Stock and Options prices are sourced from reputable, free third party websites. Prices are delayed between 15-30 minutes.
Unfortunately for both of us, this site doen't make enough money to cover a subscription to a premium data feed.
I lost money on a trade and your calculator said I would make a profit.
Please read the limitations of calculator as above. The most common reason for this is that the company released a statement or an earnings report, and there was a drastic and sudden change in the implied volatility.