What is theoretical option price modeling and why is it important?

An option is a contract to buy or sell the underlying instrument at a predetermined price (the strike price) by a predetermined date (the expiration date). It is also a derivative of an underlying security, commodity or index, and its value, or “theoretical price”, can be affected by many variables including the price and statistical volatility of the underlying asset or index, time to expiration, interest rates and supply and demand of the option itself.

Many of these variables are constantly changing. Therefore, an option’s “value”, or its “theoretical price,” is somewhat abstract. Theoretical pricing models have been developed in an attempt to properly calculate an option’s current “fair value”.

Theoretical pricing models can be used along with complex algorithms to project future option prices and predict how an option’s value will be impacted as the input variables change. The key to consistently profitable option trading lies in the ability to accurately forecast trade performance based on these ever-changing variables and make educated decisions before any trade is placed.

OptionVue 6 incorporates highly sophisticated algorithms that can project option prices more accurately than any other options analysis program. This unique capability allows you to make better informed trade decisions (based on better information) before you enter any position.

Trade with OptionVue 6 and Trade with the competitive edge!