Options Trading Strategy Simulator with Black-Scholes Model
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Key Features:
- Black-Scholes Option Pricing:
- Calculates theoretical prices for European call/put options using the Black-Scholes model, accounting for volatility, risk-free rates, and time decay.
- Strategy Simulation (Long/Short):
- Tests buying (long) or selling (short) strategies for calls/puts.
- Visualizes profit/loss scenarios for single price paths with color-coded outcomes.
- Monte Carlo Analysis:
- Runs 1,000–100,000 simulations to:
- Model potential future price paths using Geometric Brownian Motion.
- Generate probability distributions for strategy P/L.
- Plot cumulative equity curves for repeated trades.
- Market Edge Detection:
- Compares theoretical Black-Scholes prices with market quotes to identify:
- Overpriced options (potential selling opportunities).
- Underpriced options (potential buying opportunities).
- Interactive Risk Analytics:
- Dynamic charts show strike prices, breakeven points, and max profit/loss.
- Toggle between call/put and adjust parameters in real time.
- Educational Tools:
- Expandable Black-Scholes formula explanations.
- Model limitations section highlighting assumptions (constant volatility, no dividends, etc.).
Usage:
1. Set Option Parameters (Sidebar):
- Option Type: Select Call or Put.
- Strategy Direction: Choose Buy (Long) or Sell (Short).
- Stock Price (S): Current price of the underlying asset (e.g., $100).
- Strike Price (K): Option exercise price (e.g., $100).
- Volatility (σ): Annualized volatility (e.g., 30% for tech stocks).
- Risk-Free Rate (r): Interest rate (e.g., 0.05 for 5%).
- Time to Maturity (T): Years until expiration (e.g., 1.0).
- Market Price: Current option ask price (e.g., $14.10).
2. Run Simulations:
- Single-Path Simulation: Instantly visualizes P/L for one price trajectory.
- Monte Carlo: Click "Run Monte Carlo Simulation" to analyze strategy performance across thousands of scenarios.
3. Interpret Results:
- Theoretical Edge: Positive/Negative values indicate mispricing.
- P/L Distribution: Histogram shows profit probability.
- Equity Curve: Tracks cumulative gains/losses over repeated trades.
4. Compare Strategies:
Adjust parameters (e.g., volatility, strike price) to see how P/L changes dynamically.
5. Export Data (Optional):
Use screenshots or manual recording for strategy backtesting.