Option premium and delta value provided by trading platform
Personal Finance & Money Asked on May 18, 2021
how does the trading platform, like Interactive Broker, determine the option price and the delta value? Is the option price determined by models, like Black Scholes/binomial? Or is it determined by prevailing market price (bids and asks)? How about delta in the image? Is it also determined by models? Thanks
I pasted a picture of the trading platform.
One Answer
Delta is determined by using an option pricing formula. The inputs are the price of the underlying, the strike price, days until expiration, the interest rate, dividend and volatility.
The market is an auction and therefore, an option's price is determined by the participants.
The one odd calculation is determining the implied volatility of an option which involves iteration (inputting various volatilities until the pricing model's value matches the market price).
Correct answer by Bob Baerker on May 18, 2021
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