Black-Scholes Calculation Menu*
52
The Black-Scholes Menu
To open the Black-Scholes menu (the Black-Sholes key is
:
(HOLD)
B
). To open the
menu:
1. Press and hold the
:
key.
2. Press the
B
(the Black-Sholes key).
3. Release both keys.
In other words, press on the
:
and
B
keys simultaneously and hold both keys, just as
you would when accessing a shifted-function on a PC keyboard. If you press and release
:
and then press on the
B
(Black-Sholes key), you will enter the Date menu.
To change the value of the displayed item, key in a number and press
I
. Once you
have entered all known data, the unknown items are calculated automatically. Press
<
or
>
repeatedly to scroll to view the items.
An option is a contract between two parties giving party
A
the option to buy or sell an asset
from/to party
B
at a given price.
The Black-Scholes model is used to calculate an estimated fair market price for that option,
meaning that it calculates the fair price that someone would pay to buy or sell the option to
later buy or sell an asset at a given price!
The asset or stock that the option refers to is often called the “underlying asset.”
The Black-Scholes calculation is based on the contract terms (i.e., the price and date at which
the underlying asset can be sold or bought), the quality of the asset itself, its price, volatility
and return on investment, and the other available alternatives, such as storing your asset in a
safe investment account, for example.
Intuitively, if the option is to buy a stock at 10, and the stock is already worth 30 and has little
volatility, the value of the option is close to 30-10=20, plus or minus other risk factors. Table 7-
1 lists the Black-Scholes menu items along with their descriptions.
