https://www.youtube.com/watch?v=joJ8mbwuYW8&ab_channel=SkyViewTrading

This value is important to know because it can be used to ascertain whether an option is expensive or reasonably priced. Option traders use fair value as a reference, and profit by purchasing options for less than their fair value or selling them for more than their fair value.

The Black Scholes model works by using a stock's volatility, current price, strike price, risk-free interest rate for a stable asset, and time to maturity to determine fair the price of a stock option.

The original Black-Scholes model is based on a core assumption that the market consists of at least one risky asset (such as a stock) and one (essentially) risk-free asset, such as a money market fund, cash or a government bond. In addition, it assumes three properties of the two assets, and four of the market itself:

Assumptions about the assets in the market are:

• The rate of return on the risk-free asset is constant (thus effectively behaves as an interest rate).
• The instantaneous log return of the risky asset’s price is assumed to behave as an infinitesimal random walk with constant drift and volatility, more precisely, according to geometric Brownian motion.
• The risky asset does not pay a dividend.

Assumptions about the market itself are:

• There are no arbitrage (risk-free profit) opportunities.
• It is possible to borrow and lend any amount of cash at the same rate as the interest rate of the risk-free asset.
• It is possible to buy and sell any amount of the stock (including short selling).
• There are no transaction costs in the market (i.e. no commission for buying or selling securities or derivative instruments).

After cloning git repository, run the following commands in the terminal:

pip install streamlit

streamlit run options.py