Soon to expire options

[Max999]

Hi, all

Newbie question.

I use different option price calculators to estimate the price of a call with the follow attributes:

1   IV 20%

2   10 days to expiry

3   strike price OTM by 10%

After one day, when the underlying reaches the strike price, the call has risen by over 600 times in value.

Can this be right??

I know it's a theoretical calculation and the model used may be binomial, etc, but something doesn't make sense.

Would any member care to opine?

Thanks!

[Yowster]

On 7/1/2023 at 2:47 PM, Max999 said:

Hi, all

Newbie question.

I use different option price calculators to estimate the price of a call with the follow attributes:

1   IV 20%

2   10 days to expiry

3   strike price OTM by 10%

After one day, when the underlying reaches the strike price, the call has risen by over 600 times in value.

Can this be right??

I know it's a theoretical calculation and the model used may be binomial, etc, but something doesn't make sense.

Would any member care to opine?

Thanks!

600x is too high, but you'll have a really big increase.   20% IV is quite low, and 10% OTM represents a very big move for a low volatility stock with only 10 days to expiry (so that 10% OTM option is going to be really cheap).   Let's look at IBM for an example, whose IV is near your 20% mark.    Current stock price is near $134, so the 10% OTM call strike would be 147.   Let's look at the July14 expiration (9 trading days until expiry), the 147 call is less than a nickel compared to the ATM 134 strike at $1.38, so a 10% stock price rise in one day, making that 147 strike ATM would represent about 50x increase in the option price.

[Max999]

Thanks, Yowster, for your clear and helpful reply.

 

[Max999]

18 hours ago, Yowster said:

600x is too high, but you'll have a really big increase.   20% IV is quite low, and 10% OTM represents a very big move for a low volatility stock with only 10 days to expiry (so that 10% OTM option is going to be really cheap).   Let's look at IBM for an example, whose IV is near your 20% mark.    Current stock price is near $134, so the 10% OTM call strike would be 147.   Let's look at the July14 expiration (9 trading days until expiry), the 147 call is less than a nickel compared to the ATM 134 strike at $1.38, so a 10% stock price rise in one day, making that 147 strike ATM would represent about 50x increase in the option price. 

Is there any online option calculator or app you would recommend?

I input the IBM numbers into a few, but the output is miles away from reality.

Thanks again.

[Yowster]

12 minutes ago, Max999 said:

Is there any online option calculator or app you would recommend?

I don't use a calculator, I look at real quotes and their associated greeks.   CBOE site probably has a good calculator