options help, page-2

Conside a call option
Strike price =$18.00
Underlying =$17.00

Lets make up some (reasonable)prices for this hypothetical option
With the above prices prevailing
Premium (ie price of option) = (say)30c
Now the price of the underlying stock quickly moves up to $18.00 (i.e the expiry is still aprox. 8 weeks away)
What is the new value of this option ?
=75c
Price gain of the option 150%. (I think he is trying to say the option has increased by 150% of the original price-I agree it is not well expressed mathematically)
Now the option strike =underlying price.
A further rise of the stock causes the option to also rise but with a lower delta
So the stock now reaches $19.00
Price of the same option now ($1 intrinsic and say 50c time)=$1.50
Your 75c option has increased by 100%
If the stock were to rise to say $20.00 then the option price would be ($2 intrinsic plus say 20c time)
=$2.20
Your $1.50 option has increased by 70c or less than 50% of the $1.50.
So for each one dollar move in the stock the option price moves by a vastly different percentage.


Regarding Black-Scholes and option pricing have you seen the excellant pricing model on the asx website.You can vary any parameter including volatility and it calculates for you.
It is full of imformation on option pricing as well.
http://www10.asx.com.au/asx/OpcStart?Mode=T
Most traders now use the binomial model and unless you have a pretty good background in maths (ie university) it's much easier to use the ASX calculator and plug in your preferred numbers.

I hope this has been helpful for you

Best Trading

Option