CalculatorsOption StrategiesOptionsOptions strategiesOthersUsing MarketXLS

How Are Options Priced?

Written by Param Shah
Mon May 09 2022
Black scholes model
See how MarketXLS helps you take advantage in the markets.
Download Option Templates →
Black scholes model

MarketXLS offers you simple commands to fetch historical and live option prices, but have you wondered how options contracts are priced?

Any option’s premium consists of two components: the contract’s intrinsic and extrinsic value. The intrinsic value signifies the difference between the strike price of an option and the current market price of the underlying instrument. For a call option, the intrinsic value is the current price – the strike price, and for a put option, it is the strike price – the current price.

The extrinsic value consists of several factors such as time to expiration, implied volatility, interest rates, and dividend yields, among others. In other words, any premium over intrinsic value is said to form the extrinsic value. The premium is what an investor is willing to pay above the intrinsic value in the hope that the value of the contract increases due to changing market conditions.

Because of the involvement of several factors in the option premium, calculating the premium is a challenging task and is accomplished with the help of mathematical models. Several models are used in practice, like the Black-Scholes model, Heston Model, Morton Framework, etc. However, one of the most commonly used models is the Black-Scholes model.

The Black Scholes Model –

The Black Scholes model assumes no-arbitrage pricing for the options contracts and uses five key inputs to derive the option price. These inputs are namely:

  1. Strike price,
  2. Current price of underlying,
  3. Interest Rate,
  4. Implied Volatility, and
  5. Time to expiry


For a Call option, the option price is derived using.Black Scholes ModelC = call option price

N = normal distribution

St = Current price of the asset

K = strike price

r = risk-free interest rate

t = time to maturity

𝜎 = implied volatility of the asset

Fortunately, you don’t have to do this calculation yourself. Instead, MarketXLS give you predefined functions that you can directly run in excel to get the output.

But does it mean that actual market prices are always equal to the value derived from the BSM? Sadly, No. The BSM model is based on certain assumptions which may or may not hold in the real world, leading to a mismatch between the values derived from the BSM and market values.

These assumptions are as follows:

  1. Short term interest rates and volatility are constant
  2. There are no transaction costs associated with buying or selling options
  3. The options in consideration are European
  4. The returns of the underlying stock are normally distributed
  5. The markets are perfectly liquid

The Bottom Line –

Due to the impractical nature of these assumptions, market participants often notice huge differences between the values derived from BSM and actual market values. These differences are often driven by changing interest rate and volatility assumptions and supply and demand equations. However, the value derived from the BSM model can be used as a starting point while analyzing options.

Options trading gives you great advantages over trading any other kind of financial instrument. However, with the leverage that the options provide also comes with risks. Use MarketXLS Option Templates along with your own Excel calculations and real-time options data to get an advantage in the markets.
The Black Scholes Option model tries to calculate the fair value of the Option Contract.
In MarketXLS you can calculate the model value in a very simple way.
=BlackScholesOptionModelValue(“Option Symbol”) this function will return the value as per the model based on the dividend yield on the underlying asset, historical 7 trading day volatility, and an expected rate of return of 5%.
In most cases, you would notice that the value this function returns for an option contract will be pretty close to the last price of the option in the market.If you would like to use your assumptions of volatility and rate of return the function below will allow you to get the calculation Black Scholes Options Model Value.
Check out MarketXLS Plans here.
Interested in building, analyzing and managing Portfolios in Excel?
Download our Free Portfolio Template
Download Option Templates

Top 100 Gainers Today

Top 100 losers Today

Real gdpReal personal consumption expReal private investmentReal govt expenditureReal net exportsReal exportsReal importsFederal receiptsFederal outlaysFederal surplus or deficitFederal debtReal private investment nonresidentialReal private investment residentialReal potential gdpReal personal incomeReal personal consumption exp monthlyRpce durable goodsRpce nondurable goodsRpce servicesPersonal savings rateMonetary baseCurrency in circulationBank reservesMoney supply m1Money supply m2Sp500DjiaWilshire indexVixFinancial stress indexCorporate bond index aaCorporate bond index bbbFederal funds rateTreasury rate 3mTreasury rate 1yTreasury rate 5yTreasury rate 10yTips 5yTips 10yBond yield aaaBond yield baaMortgage rate 15yMortgage rate 30yUs dollar weighted averageUsdollar to euroUsdollar to poundYuan to usdollarCanadiandollar to usdollarYen to usdollarCpiCpi wo food energyCpi foodCpi energyChain price indexChain price index wo food energyGdp price deflatorPpi final demandPpi finished goodsPpi materialPpi crude goodsPpi final demand wo food energyPpi finished goods wo food energyHouse price indexHouse price index 20cityCrude oil priceGasoline priceNatural gas priceIndustrial productionCapacity utilisationInventoriesSales retail foodVehicle sales light weightManufacture orders durablesManufacture orders capital goodsLoansConsumer credit outstandingCorporate profitsHousing startsBuilding permitsResidential constructionEmployees nonfarmEmployees privateEmployees goods producingEmployees service providingEmployees governmentUnemployment rateInitial cliamsAverage weeks unemployedJob openingsHiresSeparationsQuitsLayoffs dischargesHours of productionHourly earningsReal outputPopulationLabor forceLabor force participation rate
Search for a stock

Top MarketXLS Rank stocks

Rush Enterprises Inc. Class B Common Stock logo

Rush Enterprises Inc. Class B Common Stock

Optionable: No
Market Cap: 2,753 M
Industry: Auto & Truck Dealerships
52 week range    
Booz Allen Hamilton Holding Corporation logo

Booz Allen Hamilton Holding Corporation

Optionable: Yes
Market Cap: 11,592 M
Industry: Business Services
52 week range    
BWX Technologies Inc. logo

BWX Technologies Inc.

Optionable: Yes
Market Cap: 4,846 M
Industry: Aerospace & Defense
52 week range    
Ritchie Bros. Auctioneers Incorporated logo

Ritchie Bros. Auctioneers Incorporated

Optionable: Yes
Market Cap: 6,928 M
Industry: Business Services
52 week range    
Ituran Location and Control Ltd. logo

Ituran Location and Control Ltd.

Optionable: Yes
Market Cap: 504 M
Industry: Communication Equipment
52 week range    
General Mills Inc. logo

General Mills Inc.

Optionable: Yes
Market Cap: 42,311 M
Industry: Packaged Foods
52 week range    
CRA InternationalInc. logo

CRA InternationalInc.

Optionable: Yes
Market Cap: 646 M
Industry: Business Services
52 week range    
ConAgra Brands Inc. logo

ConAgra Brands Inc.

Optionable: Yes
Market Cap: 16,287 M
Industry: Packaged Foods
52 week range    
Agree Realty Corporation logo

Agree Realty Corporation

Optionable: Yes
Market Cap: 5,522 M
Industry: REIT - Retail
52 week range    
UNITIL Corporation logo

UNITIL Corporation

Optionable: Yes
Market Cap: 928 M
Industry: Utilities - Diversified
52 week range    

More Features

Stand with Ukraine

As the situation in Ukraine escalates, many of us in MarketXLS are left with emotions too overwhelming to name. If you’d like to show your support, but aren’t sure how to, we want to help make it easier for you to act.

For any amount donated, we’ll extend your MarketXLS subscription for double of the donated amount. Please send proof of your payment to to avail the extention

From all of us at MarketXLS, thank you!