Options Pricing Formula

Options pricing models, like the Black-Scholes formula, determine the fair value of a stock option based on factors such as the current stock price, strike price, time until expiration, volatility, interest rates, and dividends. These models estimate the probability of the option ending up in-the-money and quantify the potential outcomes, allowing investors to assess risk and value. Essentially, they translate complex market expectations and uncertainties into a numeric price, helping traders make informed decisions about buying or selling options.