| Relevant Black Scholes Definitions (all values are per share) |
| Black Scholes |
The Black Scholes Option Pricing Model determines the fair market value of European options but may also be used to value American options*. The actual formula can be viewed here. |
| Stock Asset Price |
A stock's current price, publicly traded or estimated. |
| Option Strike Price |
Predetermined price (by the option writer) at which an option's stock is purchased or sold. |
| Maturity (Time Until Expiration) * |
Time remaining to the option expiration date. |
| Risk-Free Interest Rate |
Current interest rate of short-dated government bonds such as US Treasury bills. |
| Volatility |
Degree of unpredictable change over time of an option's stock price often expressed as the standard deviation of the stock price. |
| European Call * |
$US fair market value of an option exercised at expiration. A call option gives the buyer (the option holder) the right to purchase stocks from the seller (the option writer) at the strike price. |
| European Put * |
$US fair market value of an option exercised at expiration. A put option gives the buyer (the option holder) the right to sell the purchased stocks to the writer of the option at the strike price. |
| * A European option can only be exercised on the expiration date. An American option may be exercised at any time during the life of the option. However, in most cases, it is acceptable to value an American option using the Black Scholes Model because American options are rarely exercised before the expiration date. |
