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The OSCC Option Model System
is composed of a simple formula that is broken up into many parts with a
large number of
parameters to provide the data we use and to enhance it's
accuracy. There are about 240+ named ranges in the spreadsheet.
Definitions for the OSCC Commodity Option Model.
This model will also work for stock options.
All books on options show the
option pricing curve. There are two parts to an option
price, the time value and the intrinsic value caused by
the future. This results in monthly contracts for
options. The intrinsic value is not part of OSCC picture,
as we are "independent" of the futures. The
time value is the measure of the risk in options and is
referred to as option premium. We see the time value as
strictly option premium. Every strike price under the
option curve has some option premium as part of it's
value or price. We convert all of these premiums to a
"Par Value".
Definition: "Par
Value". "Par Values" are calculated by
using OSCC Option Tool Program system parameters that
vary from day to day. Consider an Aug 124 Call with an
indicated value of 39 and a Sep 124 Call with an
indicated value of 62. If the Sep 124 Call, after
adjusting for time to the same expiration date as the Aug
124 Call, has a value of 39, they are considered to be
"On par" with each other. If on the other hand,
had the Sep 124 Call had an average of 60, it would have
been two ticks under valued as compared to the Aug 124
Call.
Definition: "Premium" When we say premium we mean the total of
all these "Par Values" across all strike
prices. All the strike prices taken together is the
premium coverage. This premium can then be plotted and
directly compared between different months of a commodity
contract. It varies up and down in both long and short
term patterns. These patterns have no relationship to
that of the futures. These premiums are completely
independent of the futures. See Premium Chart
Definition: "Normalized" Not all contracts have the same number of
"active" strike prices with published data. The
number of strike prices varies with time, both increasing
and decreasing. They also vary with the commodity or
stock, and the "underlying future". They all have
historical data. Thus a way has to be found to make
comparison within a monthly contract, between months and
between "underlying futures". OSCC has that
method. The OSCC Option Pricing Model has the ability to
increase or decrease the number of strike prices and
place a value on that strike price, whether or not these
are published values. A minimum amount of data is
required to start the program. We refer to this process
as "Normalizing the Strike Price Range". We use
this "normalized strike price range" to get the
"Max Premium". To make relative comparisons between
"underlying futures" we further
"Normalize" the "Max Premium". Thus We
have the relative "OSCC Normalized Top Option
Premium"
Definition: "Total Dollar" Since the value of an option tick varies
greatly and traders are really concerned with their
actual investment. We have adjusted the "OSCC
Normalized "Max Premium"" to reflect the
dollars invested. We refer to this as the "OSCC
Normalized Total Dollar Option Premium" or "NTDOP"
We have always had a hard time explaining the
OSCC Option Model. Since We are now going to do 27
products. We have added this paragraph. As you read
above we look at the "Max Premium's. This
"look" has always been done over a
"normalized" option strike price spectrum. We
use the OSCCFV program to create any missing strike
prices and their option values. This has enabled Us to
make direct monthly contract comparisons. With the
addition of these products a way had to be found to
compare any commodity with another. This was actually
fairly simple as we just took into consideration the
dollar value of the ticks. We then of course factored
everything such that the T-Bond Option Charts had only a
small change in them.
What is the OSCC Option Model
Normalized Total Dollar Option Premium for a Normalized
Future. The (NTDOPFA)?
Since these are options on futures contracts of various values, We then further "normalized" these
values as if every futures contract at the close of every
day had a value of $100,000.
What is the "Predicted"
OSCC Option Model Premium?
The parameters that make this possible, follow patterns that can be tracked and are used to make
estimated predictions as to whether current options
premiums may rise or fall. This is referred to as the
Long Term Outlook Analysis. These estimates are based on
whether the current options are over or under priced
relative to their historical values. Skilled brokers can
interpret this knowledge and select the best possible
strategy based on their knowledge of the futures..
So far we have given site users a basic look at our OSCC Option
Program. What is shown on our charts is only the "tip of the
iceberg" as to it' full capabilities. For addition clarifications
see our OSCC Option Program accuracy page.
We also have a new
"Chart explanation page" to help explain
what these charts show and how to use them.
For a better understanding of what we do please read these
pages.
--- About Us What we found
that prompted us to develop our option program.
--- The OSCC overview of option trading.
--- The
OSCC Option Model.
--- Products
--- The Accuracy of the OSCC Option Model.
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