where ‘s the inventory speed at conclusion. The above mentioned algorithm supplies the cost of the newest portfolio replicating brand new payoff of confirmed option. It functions to possess call option and also for set option. These example shows that having place alternatives, was bad that will be confident (i.e. shorting stock and you can credit imitate the newest payoff of a put). The number features yet another translation and that is essential in next conversation off choice prices. It may be translated due to the fact awareness of option to a general change in the fresh inventory rates. Such as for instance, in case the inventory rate alter by the $step 1, then option speed, , alter because of the count . Read More Costs a call option – an illustration