Option Pricing Spreadsheet Template (European Call / Put Options)

Options trading has many advantages over other investment vehicles. Trading in option contracts can give an investor the flexibility to place bets on very specific market outcomes.

For example, an option trader can make a bet that in 6 months time a stock will be trading either above a certain price or below a lower price - an each way bet if you will. If the stock trades between these two prices in 6 months, the trader will lose a predetermined amount. This type of option strategy is known as a Long Straddle or could also be a Long Strangle.

Option contracts also provide traders with an enormous amount of leverage. In the US, 1 option contract represents 100 underlying shares. In other countries, such as Australia, option contracts can be in multiplies of 1,000 times the underlying stock or commodity. So, with a relatively small amount of money an option trader can control a very large underlying stock position.

Because of this, option trading can also be a very risky venture for the inexperienced. Of course, option trading can make you very large returns in small amount of time, but trading options can also lose you the same amount if you are not careful.

The attached option pricing spreadsheet will allow you to price European call and put options. You can also enter up to ten different option/stock leg combinations to view the expected payoff at expiration.

The option strategy graphs provided in the spreadsheet are only 2 dimensional, however, if you would like something a little more advanced when it comes to payoff profiles then take a look at this outstanding piece of software that calculates 3 dimensional graphs for various strategies:

http://www.finance30.com/group/investors/forum/topic/show?id=198789...

Also look at this nifty portfolio management & data download toolkit that allows you to down market prices direct into Excel (including option prices):

http://www.finance30.com/forum/topic/show?id=1987892%3ATopic%3A21085

Spreadsheet developed by Option Trading Tips.