Skip to content

Call or Put Analyser

What is different about our Black Sholes model?

We use an improvised Black 76 model instead of the conventional Black Scholes model, which suits Indian markets better. Most professional traders across the country use the same. In this model, we use the futures price instead of the stock price and ignore interest rate, dividends, etc as these are implied in the futures price. Also, when futures are in discount, a positive interest rate will result in big errors in the Black Scholes model.

Why is the IV on NSE website different from our IV?

NSE uses Black-Scholes model with a constant interest rate assumption of 10%. The observed interest rate in the market is not 10% but it varies time to time with changes in Reserve Bank’s repo rate and interbank lending rates. The difference in NSE’s IV calculation can be very clearly inferred by the fact that IV of the ATM put and call are two significantly different values in NSE option chain whereas they should both have the same IV.

What if a stock has a dividend payout?

This is all the more a reason why you should use our calculator instead of the conventional Black Scholes calculators. We use the futures price which captures the expected dividend correctly and cleanly.

WHAT is the best part?

Tough one. I will go with the Implied Futures on the Weekly Bank NIFTY options. As there are no weekly futures on Bank NIFTY, a lot of traders make mistakes as they use the spot/ monthly futures. We calculate the implied futures from the Bank NIFTY options, which prices options correctly.

Methodology

We use a modified Black Scholes / Black 76 model to price options. IVs are based on historical data. STT is estimated to a reasonable level of accuracy. P&L calculations are based on reasonable assumptions of volatility, liquidity, etc and need not be accurate. Prices on illiquid options might not be accurate or tradable.

There might be some glitches because of market irregularities. Our prices and calculations may be off in case of illiquid options. We would recommend trading only in liquid options, which are:

NIFTY and Bank NIFTY monthly options Weekly options for the current week NIFTY 50 single stock options with strikes near at-the-money strike in the current month