Once a nomad, always a nomad

I like stock options, I like them very much. But working with them on a high level requires good simulation of various situations and possibilities. And most of the tools that I found or bought are either very limited after a certain point of sophistication, or they cost a fortune.

But did you know, that if you have Apple’s OS X, then you already have the best option simulator installed? Well, almost. :) You have Grapher, that is very good for handling graphs. All we need now is a Grapher equation file that can handle the Black-Scholes model.

After looking for something like that on the whole internet, I came to the sad realization that I will have to do it myself. Took a few hours, but here it is: a Grapher file that calculates put and call option prices based on the parameters you give them. And the rest is up to Grapher (and your imagination).

Here it is, free for download, and use:

BlackScholesOptionSimulator.gcx (Right click, and “Download Linked File”)

In this example (on the picture, and in the file as a sample) we buy a PUT and a CALL option (together called a “straddle”) at $10 strike, 38 days before expiration, when the current price is also $10, and volatility is 35%. We examine what happens if we sell the same options 7, 14, 21, 28 and 35 days before expiration (this makes it 5 graphs), assume the volatility will be the same (35%), and the price of the stock is on the X axis.

We substract the close prices from the entry prices, and we graph our profit.

I’m not sure if I explain it very well, but you will figure it out, I’m sure. :-) The main point is that using the call(…) and put(…) functions and Grapher’s “series”, animation, 3D-display and other features, you can put together and simulate any complex combinations you can imagine, and examine the potential profit, the change of price depending on time, on volatility, or on any other parameter.

Good luck. Please drop a comment here if you have found this useful, just to keep me happy. Thanks!