Projecting Options Gain /Loss

In getting my feet wet with options trading, I’m trying to forecast what a straddle or strangle arrangement with calls and puts will be like in various ending scenarios.

Problem is, I have no reliable way to project the worth of an option near expiration where I might trade them.

Using the book procedure of calculating IV from the difference between strike and market doesn’t get me a consistently declining time value for the option. I’ve tracked two stocks for a contract period and found the above method gives me nothing close to what the options end up at by the trade point.

I’ve also tried using the Greeks and get the same inconsistent or off-the-mark results.

In many cases, I see the time value decrease over time, but then also increase for a couple of days. This I don’t get, and I’m not sure factoring in volatility would affect the simplicity that the time value should decrease regularly from day to day. It might change the resultant price for the option as a whole, but I don’t see how it would affect the decaying time value. Yet MSN reports erratic time values for options that don’t follow a consistent decay principle.

After diligently tracking ALXN and AAPL in a spreadsheet showing call and put prices against changes in the underlying, and the corresponding values of their Greeks from day to day, I find absolutely NO running principle I could depend on for forecasting the price of the options if I plugged in the given change in the underlying.

Which leaves me and everyone else in my position with the notion that in the end you just have to wait and see. The factors for deriving the price must be in actuality known only to some elite board of assessors and good luck trying to forecast what they will calculate at any point in time.

Any thoughts on where I’m going wrong or how I can set up a forecasting sheet to project more reliable price changes into the future?

Mike

I think by what you ask ,your looking for the Black-Scholes model.
I beleave it was one of the first formulas that could be drawn up to calculate opton prices.
There are others but this was the first,although attempts were made to improve on this model
traders like it, as the formula is rather easy to use in that the equations are short and the number of variables is small.

There is a book called OPTIONS AS A STRATEGIC INVESTMENT
BY Lawrence G. Mcmillan.
Everything you ever wanted to know about option trading is in this book,hope you find one.

Thank you so much for the reference. I hope too I can find it somewhere.

Mike

I am not sure I understand what your original premise is based on. Why do you believe that you should be able to accurately and reliably "forecast" option values? After all, options are market instruments.