Calculate the value of stock options using the Black-Scholes Option Pricing Model. Input variables for a free stock option value calculation. The 'Black-Scholes Model' is used to determine the fair price or theoretical value for a call or a put option based on six variables such as implied volatility, type of option, underlying stock price, time until expiration, options strike price, and ... 11-2 Options Chapter 11 1.2 Option Payoff The payoff of an option on the expiration date is determined by the price of the underlying asset. Example. Consider a European call option on IBM with exercise price $100. This gives the owner (buyer) of the option the right (not the obligation) to buy one share of IBM at $100 on the expiration date.

An Average-strike option is an option whose payoff is based on the difference between the spot price at expiration and an average strike price determined over the life of the option. These options can assure that the average price paid (or received) for an asset over a certain time period is not greater than the final price. European style options tend to be cheaper than American style options because if a stock spikes prior to expiration, an American style call option trader can capitalize on that increase in value, whereas the European style call trader has to hope the price spike holds until expiration. The strike price is the price at which the option holder can execute the option up until its expiry date when the option ends. A call option is the right to buy at the strike price, and a put ...