Option Pricing (Black-Scholes) Calculator
Black-Scholes Option Pricing Calculator
Calculate theoretical Call and Put option premiums.
Theoretical Call Price
₹47.20
Theoretical Put Price
₹38.59
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Black-Scholes Theoretical Option Pricing Formula
Calculates the fair market value of European options based on spot price, strike price, volatility, interest rates, and time to expiry.
Worked Example: Pricing a Call Option (Spot ₹1,500, Strike ₹1,500, Volatility 25%, 30 days to expiry, 7% risk-free rate)
Option Valuations: Calculating fair premiums using Black-Scholes
Aditi wanted to trade options on a stock trading at ₹1,500. A call option with a strike of ₹1,500 expiring in 30 days was trading at a premium of ₹60. Aditi wanted to check if this premium was overpriced.
Using the Black-Scholes model with 25% volatility and a 7% risk-free interest rate, she calculated the fair theoretical price to be ₹48.65. Recognizing that the market premium of ₹60 was highly overvalued, she decided to write (sell) the option rather than buy it.
The Black-Scholes formula is the industry-standard mathematical model for pricing European options using spot price, strike, volatility, and time to maturity.
Always check implied volatility (IV). High IV inflates option premiums, making buying options risky but providing attractive premium income for option sellers.
Frequently Asked Questions
What does the Black-Scholes model calculate?
It calculates the theoretical fair value of European-style options based on spot price, strike price, time to maturity, interest rates, and volatility.
Why is the market price of an option different from the theoretical price?
The Black-Scholes model assumes constant volatility. The market price fluctuates based on Implied Volatility (IV) driven by supply and demand.
Can Black-Scholes price American options?
No, standard Black-Scholes only prices European options (which can only be exercised at expiry). American options require binomial models, although the price differences are often minor.
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