Calculate Implied Volatility for Options in Excel
Use the opt_ImpliedVolatility function in MarketXLS to quickly and accurately find the implied volatility of an option based on real-time inputs. By leveraging local calculations, you eliminate the need for external connections, making this a fast and secure way to enhance your trading analysis in Excel.
Why Use This Function?
- Speed and Accuracy: Calculate implied volatility instantly, right inside Excel.
- Local Calculation: No external data connections are required—everything runs on your local machine.
- Flexible Input: Works for both Call and Put options by simply specifying the option type.
- Streamlined Workflow: Incorporate implied volatility into your larger Excel models, macros, or dashboards.
- Practical Analysis: Implied volatility is a key metric for options traders, helping you understand expected future price fluctuations of the underlying stock.
How to Use in Excel
opt_ImpliedVolatility(currentStockPrice, marketOptionPrice, expiryDate, optionType, strikePrice, [riskFreeRate])
- In an Excel cell, type “=opt_ImpliedVolatility(” and provide the parameters in the order shown.
- Press Enter to see the implied volatility result.
- If you do not provide a risk-free rate or set it to 0, the function uses a default rate of 4.5%.
Example formula in Excel:
=opt_ImpliedVolatility(A2, B2, C2, D2, E2, F2)
Where A2 could be the current stock price, B2 the market option price, and so forth.
Parameters Explained
Parameter | Description | Example Values | Notes |
---|---|---|---|
currentStockPrice | Current price of the underlying stock or asset. | 100, 150.25, 85.6 | Must be a positive numeric value. |
marketOptionPrice | The actual market price of the option as quoted. | 5, 10.5, 2.75 | Useful for reverse-engineering implied volatility from known option prices. |
expiryDate | The expiration date of the option. | "12/15/2023", "6/30/2024" | Must be a valid date. Affects time to maturity in the volatility calculation. |
optionType | Specify "Call" or "Put" to indicate the type of option. | "Call", "Put" | Must be a valid option type. The function returns an error if otherwise. |
strikePrice | The strike (exercise) price of the option. | 100, 105.50, 80 | Must be a positive numeric value. |
riskFreeRate (Optional) | The risk-free interest rate used for discounting, often approximated by the yield on government securities. If not provided or set to 0, defaults to 0.045 (4.5%). | 0.02, 0.05, 0.045 | Helps refine the implied volatility result based on interest rates. |
Example Usage
Basic Examples
-
Simple Call Option Example
=opt_ImpliedVolatility(100, 5, "12/15/2023", "Call", 100)
• Current Stock Price (A2): 100
• Market Option Price (B2): 5
• Expiry Date (C2): 12/15/2023
• Option Type (D2): "Call"
• Strike Price (E2): 100
• Risk-Free Rate omitted, defaults to 0.045This returns the implied volatility as a decimal (e.g., 0.25 for 25% IV).
-
Simple Put Option Example with Custom Rate
=opt_ImpliedVolatility(150, 10, "6/30/2024", "Put", 140, 0.02)
• Adjusting the risk-free rate to 2% changes how future cash flows are discounted.
• Because it is a "Put," the calculation adjusts accordingly.
Advanced Scenarios
-
Multiple Contracts on the Same Stock
Suppose you have several option strikes for the same underlying stock, each with different market prices. You can set up multiple rows in your sheet, each one calling opt_ImpliedVolatility with unique strike prices and option prices. This helps compare implied volatilities across strikes and maturities to identify potential trading opportunities. -
Combining with Other Excel Functions
• Use IFERROR around the function to catch any "NA" results gracefully.
• Incorporate VLOOKUP or INDEX-MATCH to fetch the parameters dynamically from a table of options data.
• Aggregate implied volatility values using AVERAGE or MEDIAN if you're evaluating multiple option contracts. -
Strategy Analytics
• Pair the implied volatility result with your delta, gamma, or theta outputs (calculated separately) to assess total risk.
• Track how implied volatility changes over time (historical vs. current) for a more robust market outlook.
Common Questions and Troubleshooting
-
Why do I get "Invalid option type. Please specify 'Call' or 'Put'."?
Make sure the optionType parameter is either "Call" or "Put" (exact spelling is required by the function). -
Why do I get "NA" as a result?
This usually indicates an error or non-convergent implied volatility calculation. Double-check your inputs (e.g., stock price, strike price, and option price) to ensure they are realistic. Also verify that your riskFreeRate, if provided, is a valid numeric value. -
What if I don’t have a valid MarketXLS license?
The function returns a license-related message if your MarketXLS license is invalid or expired. -
Does the function return implied volatility as a decimal or a percentage?
By default, the returned value is a decimal (e.g., 0.30 for 30%). You can format the cell in Excel to display it as a percentage if desired. -
Can this function handle American-style options?
The code directly references an internal implied volatility calculation. It is typically derived from models that can be used for many option types; however, MarketXLS often defaults to European-style assumptions if not stated otherwise. For specific American-style complexities, consult MarketXLS support or test the outputs to validate.
By harnessing opt_ImpliedVolatility in Excel, you gain a fast, reliable way to gauge the market’s expected price movement for various option strategies. Whether you’re a seasoned trader seeking precise analytics or just starting out, this function streamlines your option pricing workflow with local, efficient calculations in Excel.