The Black-Scholes model does an admirable job at valuing short-term options. If an option expires in a few weeks, the current price of the underlying stock and its recent volatility have a good deal of influence on the outcome of the option investment. A simple Black-Scholes calculation has a lot of flaws (none of which I'll go over), but in my opinion it does alright on the short-term options. However, the further away the expiration date, the worse it gets.
An Option Model for Value Investors
An Option Model for Value Investors
An Option Model for Value Investors
The Black-Scholes model does an admirable job at valuing short-term options. If an option expires in a few weeks, the current price of the underlying stock and its recent volatility have a good deal of influence on the outcome of the option investment. A simple Black-Scholes calculation has a lot of flaws (none of which I'll go over), but in my opinion it does alright on the short-term options. However, the further away the expiration date, the worse it gets.