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Hello,
I work and trade options and one of the things that we do requires me to know the probability of a trade being successful. To understand what I'm looking for, I use a calculator like the one located here: http://www.optionvueresearch.com/webtools2/ProbabilityCalculator.asp
However, I need to know the formulas to use in a spreadsheet, I can find IV or implied volatility as it is available on most trading platforms. So if we use the above form with the example of a stock trading at 427.55 and put in the Future Date of 12/20/08, or 145 days ahead, with Future Volatility of 45.64%, Risk Free interest rate of 2.00, then First Target of 555.10 and second target of 312.30
How do I get to the answers the show up in the form when you hit the Go button? Standard Deviations and Probability?
The first part appears to be just a standard deviation calculation, so I could take (427.55 * 45.64(IV) * sq rt of 145 days) / sq rt of 365 (days in a year) = 122.99, that gives me 427.55 + 122.99 or 550.54, however this is not lognormal distribution just a basic normal distribution, so it's close but not exact. Then I have no idea on the probability formula to calculate the last values at the bottom of the form.
Any help to determine the formulas would be most appreciated...
Kind Regards,
Mark
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use the black scholes model. although i can't help you in programming the model as i've already tried and failed to simulate a number of iterations using basic.
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