What are stock options?
Stock Options give the option holder the
right to buy or sell a stock or a commodity at a future time at an agreed price. The right to buy or sell gives the option real value but how much? To calculate the real value of an employee stock option you need to use the Black Scholes Model.
The Black Scholes Model
The Black Scholes Model is a complicated formula that tells you what your options are worth. It was developed in 1973 and revolutionised the derivatives market.
Its inventors were awarded the Nobel Prize for economics but you don't need to have a nobel prize to use it - the ADVFN Black Scholes Stock Option Calculator makes it easy. All you need to know is:
- the number of options
- the option's exercise price
- the number of years until it matures
- the risk free rate
and the option calculator will do the rest for you.
Stock options are always a hot topic on the
ADVFN bulletin boards.