Monthly Archives: January 2016


Options’ time decay

Category : Uncategorized

Options’ time decay

What happens to option prices from Day1 to DayMaturity; 1) if there is no change in price, 2) if price increases by 5%, 3) if price increases by 10%, 4) if price decreases by 5%, 5) if price decreases by 10%.

*
* Cost of each day on option price

clear all
cd "/Users/mfd/Desktop"

* Current IV
fetchyahoooptions AAPL, m(2013-11)

keep if strlen(Symbol)==strlen(Underlying)+15
keep if Maturity==date("16nov2013","DMY")
keep if Type=="Call"
drop if Strike>Price*1.2
drop if Strike

what_if_Calls

 

Screen Shot 2013-10-13 at 8.18.16 PM

 

 


Price to earnings multiple

Category : Uncategorized

Price to earnings multiple

Price to earnings (P/E) ratio is: How much the market is paying for each dollar of earnings. It is calculated by dividing market price of the stock by earnings per share. However, the price is paid once to purchase the stock and earnings are realized every year. Thus, the P/E ratio is based on investor expectations of future earnings.

If we have a P/E ratio of comparable firms or of the overall market, then we may be able to calculate an expect price for a company of our choice.

If the market is willing to pay $10 for each dollar of earnings of a comparable firm and if we expect our company’s annual earnings to be $5 then the expected price for our company would be $10 X $5 = $50.

*
mfd_dm_components, symbol(^GSPC)
levelsof Symbol, local(tickers)
fetchyahookeystats `tickers', field(n s l1 e r)
drop if Price_to_Earnings==.
egen average_PE=mean(Price_to_Earnings)
gen price_PE_multiple= Earnings_per_Share * average_PE
list
*

Screen Shot 2013-12-25 at 5.53.13 PM

Last\_T{\thicksim}e is last traded price. Earnin{\thicksim}e is earnings per share. Price\_{\thicksim}s is the P/E ratio. averag{\thicksim}E is the average P/E ratio for these companies. price\_{\thicksim}e is the price calculated using the P/E multiple.

Please note that this table is for illustration only. The earnings per share used in P/E multiple calculation is the expected earnings per share. The earnings per share that we used above is the earnings per share that is already announced. Also, we simply took the Dow Jones composite index companies. These companies are not necessarily comparable to each other. Proper P/E multiple calculate should be between comparable companies. The example above is to show you how to calculate and use P/E multiple.


What-if analysis for options

Category : Uncategorized

What-if analysis for options

Questions:

* What the price needs to be in order to break-even after a weekend, keeping IV constant?

* What the price needs to be in order to break-even after a weekend and IV increase of 2%?

* What the new ask price will be after 3 days and IV increase of 2%?

* What the new ask prices will be after 3 days and IV increase of 2% and price decrease of 1%?

* What the new ask prices will be after 3 days and IV increase of 2% and price increase of 1%?

*
* Download AAPL 2013-11 maturity options
fetchyahoooptions AAPL, m(2013-11)

* Keep only the monthly OPEX
keep if Maturity==date("16nov2013","DMY")

* Keep regular size options (no minis)
keep if strlen(Symbol)==strlen(Underlying)+15

* Keep only the Call options
keep if Type=="Call"

* Calculate the Implied Volatility
fetchyahoooptions AAPL, calconly iv

* What the price needs to be in order to break-even after a weekend, keeping IV constant
fetchyahoooptions AAPL, calconly price_target(day) target_day(-3) target_varname("PT_day3")

* What the price needs to be in order to break-even after a weekend and IV increase of 2%
fetchyahoooptions AAPL, calconly price_target(day iv) target_day(-3) target_iv(+2) target_varname("PT_day3_iv2")

* What the new ask prices will be after 3 days and IV increase of 2%
fetchyahoooptions AAPL, calconly new_ask(day iv) target_day(-3) target_iv(+2) target_varname("Ask_day3_iv2")

* What the new ask prices will be after 3 days and IV increase of 2% and price decrease of 1%
fetchyahoooptions AAPL, calconly new_ask(day iv) target_day(-3) target_iv(+2) price_change(-1) target_varname("Ask_day3_iv2_p1")

* What the new ask prices will be after 3 days and IV increase of 2% and price increase of 1%
fetchyahoooptions AAPL, calconly new_ask(day iv) target_day(-3) target_iv(+2) price_change(+1) target_varname("Ask_day3_iv2_p1_up")

order Underlying Type Maturity Strike Price PT* Ask*
drop if Strike>Price*1.2
drop if Strike

Break-even chart:

PT_3days_2iv

 

 

New Ask price chart:

AAPL_day3_iv2_p1