The OSCC Option Model System.

Our "secret formula" and its consequences!

P = T(((T-S)/T))^ABS(D)

The OSCC Option Model Formula Basics.

Before us:

The present option model took two Ph.D.s an entire book to explain. It requires massive computing power to do all the iterations involved sine they use the entire option price, including both intrinsic and time value using a log normal distribution formula.

Solution:

Our formula requires no iteration and is a simple straight forward calculation.
 Anyone can do this in MS Excel on any everyday computer.

The OSCC Option Model System is basically very simple. 
There are two parts to option prices, the time values and the intrinsic values caused by changes in 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 we refer to it strictly as the "option premium". Every strike price under the option curve has some option premium as part of it's total value or price. This curve is defined as the entire strike price distribution curve or ESPDC for short. Anyone can calculate the intrinsic value and add it to our option premium to get the amount they see posted in newspapers.
Definition: "Premium" This is defined on our premium page. This explanation shows a simplified version of the normal curve to the time value of options premiums that we have seen for years.
     However, this does not show what is actually going on. To see that you first must separate out the time value and plot that. Please note that the Max Premium lies at point between the strike prices Thus this would be the time value of an option if the future closed exactly at the strike price, which it hardly ever does.
See illustration #5 
Then you must take the natural logarithm of the time value of the options.
When you do this and use our formula this is what you get.
See illustration #6 .

You will notice that this changes both actual time value premium and our calculated value to straight lines. These lines all meet at the head. The head is an option premium value for a strike price equal to the future. This chart is for calls but the chart for the puts has virtually the same head values. This "head value" is  what we plot on our premium charts. As you study our charts you will see that this "head Value" can be dramatically different for different contracts on the same future. I have never found any relationship between the risk in the options , what the futures is doing or anything else in the market that relates to the up and down movement of the "head value" I challenge any one to show any relationship . I have no idea how this value is being set, but by looking at my charts you can see that it is being set, This is what plaintiffs are going to exploit when they try to recover all their losses.

The same things can be said of the arms. Their slope floats up and down without any logical reason.
Our "secret formula" can be used to determine the option value at any strike price without the iteration needed by the presently used formula.

Our formula is:
P = T(((T-S)/T))^ABS(D)
Where:
P=option time value
T = Max Premium value
S= slope of the arm
^ means that what is inside the parentheses is raised to the power of the Absolute value of the difference (D) between the future and the strike price.

The formula to put in a MS Excel cell is
aaaT*((T-S)/T)^ABS(D)
Where you must first make value in other cells for the letters and then replace aaa with an = sign.
You can then make a spreadsheet to produce a value for all the strike prices, even if there is no trading at a strike price.

How is the top and slope determined?
You use the MS Excel function LINEST to draw a straight line through the first three strike prices to find the Head value is where that line intersects the future. A variation of this function gives you the value for the slope.

How can this formula be used?

1. You can take the raw data you get from your data vendor, determine the Head "H" and then determine the a real time price for the option at any strike price, even if that strike price is not traded.
2. An exchange can use this formula pricing the Head vale and the four different slopes for in the money and out of the money puts and calls.

Protection of our formula. 

This formula is protected by both a Patent Pending filing and a Registered Copyright. The Registered Copyright allows us to recover damages and attorney fees. We have set damages at $100.00 per option side traded, determined or data distributed per second.

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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