About Options Pricing /Trading

(1) 如果想对 "Black-Scholes" options pricing model有更多了解, 不妨一试下面的LINK:

http://en.wikipedia.org/wiki/Black-Scholes

You can also find many numerical methods to price options in the finance literature.

(2) If you've no time for Black and Scholes and need a quick estimate for an at-the-money call or put option, here is a simple formula.

Price = (0.4 * Volatility * Square Root(Time Ratio)) * Base Price

Time ratio is the time in years that option has until expiration. So, for a 6 month option take the square root of 0.50 (half a year).

For example: calculate the price of an ATM option @ $45 (call and put) that has 3 months until expiration. The underlying volatility is 23%.

Answer: = 0.4 * 0.23 * SQRT(.25) *$45

Option Theoretical (approx) = $2.07

(3) What Affects Equity Option Prices?

 The current price of the underlying financial instrument
 The strike price of the option in comparison to the current market price (intrinsic value)
 The type of option (put or call)
 The amount of time remaining until expiration (time value)
 The current risk-free interest rate
 The volatility of the underlying financial instrument
 The dividend rate, if any, of the underlying financial instrument

注意不要本末倒置, 抓住重点, 才能有的放矢。

(4) 对于个人帐户, trading gamma vega theta rho....常常会十分困难, 甚至可以忽略不计, 但俺赞成在trading options前, 对这些概念最好有深入的了解。 Options are the most versatile trading instrument ever invented。 它的最大的好处是high leverage 和limited risks， 所以要善加利用这两点。如果把trading options 和trading the underlying结合起来，在运动(trading)中消灭敌人和在运动(trading)中保护自己, 这有可能是小户战胜大户的致胜之道。