Option Trading Work Book

Version 2.1

Introduction This spreadsheet is provided free of charge for you to use to further your education in options trading. The formulas used were taken from two great books on option trading Option Volatility and Pricing by Sheldon Natenberg Financial Models using Excel by Simon Benninga You can read more about these books from the www.OptionTradingTips.com website http://www.optiontradingtips.com If you have any suggestions for this workbook or even have a bug to report, please feel free to email me at [email protected] To stay up to date with changes to this workbook and other modifications to the website, please feel free to subscribe: http://www.optiontradingtips.com/subscribe.html I have written all the formulas in Visual Basic using modules and are freely disclosed, so you may examine the logic, edit and change the calculations as you like.

Troubleshooting You will need to have Macros enabled for the calculations to work. Follow the steps below to enable Macros: Excel 97 - 2003 Go to Tools/Options Click on the Security tab Go to Macro Security Change the setting to Medium Close and reopen the workbook. It will ask you if you want to enable Macros, click Yes Excel 2007 First, make sure that you can see the Developer tab If there is no Developer tab, click on the Office icon to the top left of the application and choose Excel Options, which is located at the bottom right of the popup. Now click on Popular at the top left. Check the box titled "Show developer tab in the ribbon". Now, click on the Developer tab. Click on Macro Security. Select "Disable all macros with notification" and press ok. Close and reopen spreadsheet. Now you should see a Security Warning appear in the toolbar that reads "Macros have been disabled". Click on the options button. Select "Enable this content" and press ok.

Release Updates 11/06/07 - Fixed a bug on the OptionStrategies tab. The greeks for Stock positions were previously displaying 27/04/06 - Fixed a bug that failed to calculate the theoretical change in P&L for stocks in the strategies tab. 28/08/06 - Fixed a small calculation bug for the Option Theta, which now has a near perfect accuracy. 1/10/06 - Added support for Dividend Yield, which can be used as a workaround to price options on futures

by making the Dividend Yield the same as the Interest Rate.

Basic The worksheet labelled Basic is a simple option pricer. You simply enter the option details into the yellow shaded areas and the output values will be displayed underneath in the blue shaded cells.

OptionPage OptionPage is a worksheet that allows you to price a string of calls and puts for the same expiration date. Again, you enter the option details into the yellow cells and the output values are in the blue shaded cells. You can calculate the market implied volatility for each option by simply typing in the market price of the option in the column labelled "Market Price" and the volatility implied by the option's market value will show in the column "Implied Volatility". Column's A and L are where you can change the strike prices used for the calculations. Or you can just have the values derive straight from the Underlying Price by default.

OptionStrategies This worksheet lets you enter combinations of options positions so you can view the payoff/risk graphs. The underlying data for the options is taken from the information entered into the OptionPage worksheet. Then just enter the number of contracts for each position and remember to put a negative number for sell positions. For Type, just enter "c" for call options, "p" for put options and "s" for stock/futures position. If you know what the option is trading at, you can enter the market price in the "override premium" row to calculate the P&L of the position after taking into account the actual price of the option.

StrategyGraphs

This worksheet will show the current Greek position values of your option strategy while referencing the a range of underlying prices. You can change the range of values by changing the cell A17 in the OptionStrateg worksheet.

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http://www.OptionTradingTips.com Underlying Price Exercise Price Today's Date Expiry Date Historical Volatility Risk Free Rate Dividened Yield DTE (Years)

Theoretical Price Delta Gamma Theta Vega Rho

1000 1000 7/23/2013 8/15/2013 20% 5.00% 0.00% 0.06

The current base price of the instrument, eg, the closing price of Microsft Stock The price at which the underlying instrument will be exchanged. Also called Strike Pric The Date which the contract expires The Historical Volatility of the asset's returns The current risk free interest rate i.e. your return on cash held in the bank The Annualized Dividend Growth Rate of the Stock

Call Option Put Option 21.6075 18.4618 0.5350 -0.4650 The amount that the theoretical price will change if the market moves up 0.0079 0.0079 The amount that the Delta will change if the market moves up/down 1 po -0.5041 -0.3675 The amount that the theoretical price will change when 1 day passes. 0.9976 0.9976 The amount that the theoretical price will change if the volatility of the as 0.3235 -0.3046 The amount that the theoretical price will change if interest rates move u

ent, eg, the closing price of Microsft Stock rument will be exchanged. Also called Strike Price

your return on cash held in the bank

oretical price will change if the market moves up/down 1 point lta will change if the market moves up/down 1 point oretical price will change when 1 day passes. oretical price will change if the volatility of the asset moves up/down by 1 percentage point oretical price will change if interest rates move up/down by 1 percentage point

25.00 23-Jul-13 30.00% 17-Aug-13 3.50% 2.00% 25 0.07

Strike Prices 22.50 23.00 23.50 24.00 24.50 25.00 25.50 26.00 26.50 27.00 27.50

Underlying Price Today's Date Historical Volatility Expiry Date Risk Free Rate Dividend Yield DTE DTE in Years

ITM ITM ITM ITM ITM ATM OTM OTM OTM OTM OTM

Theoretical Market Price Price 2.59 2.16 1.75 1.38 1.06 0.79 0.58 0.40 0.27 0.18 0.12