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Sensitivity analysis of options on time and price | Free template

Sensitivity analysis of options on time and price is a free template that you can use to analyze and visualize how the price for a option is affected by the time left until expiration and changes in the price of the underlying instrument.

The option price is made up of a time value and a intrinsic value. The intrinsic value is the difference between the price of the underlying instrument and the strike price (expiration price) while the time value is the difference between the option price and the intrinsic value. The intrinsic value of an option can never be negative and have therefore zero as the lowest value.

Anyone who buys a call option or a put option must pay a premium (option price) to the person selling or issuing such an option and the premium (option price) is affected by the volatility that is expected (implied volatility), the interest rate, the time to expiration and the price of the underlying instrument.

The time value of an option will gradually decrease to finally reach 0 on the exercise date and the purchaser of an option have always the time against him. The expected volatility has a positive relationship with the option price so that a higher expected volatility means an higher option price when all other factors are kept unchanged. A call option increases in value if the price of the underlying asset rises and a put option increases in value if the price of the underlying asset decreases.

In this template for sensitivity analysis of options on time and price we have used Black-Scholes formula to calculate the option value depending on the time left to the exercise day and the price of the underlying instrument. A sensitivity analysis of options can be valuable because you can see how the option price is affected by time and price when you are about to buy options or go short (issue) in options.
Updated: 01-01-2015 | Created by All-templates.biz

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Tags: option warrant decision making

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