What option traders can determine from Black Scholes Tool?
In options trading, we’re always asking the same question: “Is this option priced fairly?” But how do you see “fair” in a sea of live prices?
The Black-Scholes Playground is built to reveal a core truth:
Price is just probability wearing a price-tag.
Provide the five market inputs, spot, strike, expiry, interest, and your volatility guess and watch the model provide the option’s theoretical value.
What is Black-Scholes model?
It is a mathematical formula that outputs the fair price of an option when you supply five inputs: underlying price, strike, time to expiry, interest, and volatility.
Why traders should care?
It gives a closed-form price for calls & puts. It lets you eyeball whether an option looks rich or cheap before trading.
How to use the Black-Scholes tool?
Go to Black Scholes tool on AlgoTest:
- SPOT = current underlying price
- STRIKE = option’s strike price
- EXPIRY = expiration date
- VOLATILITY (%) = annualised IV (or your best estimate)
- INTEREST (%) = risk-free rate for the option’s tenor
- DIVIDEND (%) = expected continuous yield (0 for NIFTY/BANKNIFTY futures)
Click “Calculate.”
Read the output table: you can see call/put premiums and all the greeks.
Change any input and recalculate to see how price and risk metrics move.
What does it tell us?
- Theoretical option premiums under Black-Scholes assumptions.
- Directional risk (Delta), convexity (Gamma), volatility risk (Vega), time decay (Theta), and rate sensitivity (Rho) for both calls and puts.
- By comparing these outputs to actual market prices you can spot mis-pricings, build volatility surfaces or decide how aggressively to hedge.
If you want to learn about options in details, check out financial education section on AlgoTest's documentation.
