CreateSyntheticOption - Wealth Lab Forum

Partha

#1

9/22/2019 3:59 AM

Two questions related to CreateSyntheticOption

1) How do I find out what is the value of the Volatility used in calculations in the CreateSyntheticOption method?

2) How do I output the greeks?

I am using this code to calculate the fair value and I get a different answer compared to the formula in

https://www.optionseducation.org/toolsoptionquotes/optionscalculator

CODE:
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Two questions related to CreateSyntheticOption

1) How do I find out what is the value of the Volatility used in calculations in the CreateSyntheticOption method?

2) How do I output the greeks?

I am using this code to calculate the fair value and I get a different answer compared to the formula in

[link]https://www.optionseducation.org/toolsoptionquotes/optionscalculator[/link]

[code]using System;
using System.Collections.Generic;
using System.Text;
using System.Drawing;
using WealthLab;
using WealthLab.Indicators;
using System.Windows.Forms;

namespace WealthLab.Strategies

{	
	
	public class GenOptions : WealthScript
	{
		//Bars CreateSyntheticOption(DateTime startDate, DateTime expiryDate, double strikePrice, bool isCallOption);

protected override void Execute()
		{
			ClearDebug();
			double strikeDiff = 3.0d;
			// Enter days to expiration
			int DaystoExp=41;
			int bar = Bars.Count - 1;
			
			DateTime lastDate = Bars.Date[bar];
			DateTime startDate = lastDate;
			DateTime expiryDate = DateTime.Today.AddDays(DaystoExp);
			
				
			//Parameters for pricing the "at the money" put options
				
			double strikePrice=Math.Floor(Bars.Open[bar]);
			bool isCallOption=false;

//Price the Put Credit Spread
			Bars putContract_sell = CreateSyntheticOption(startDate, expiryDate, strikePrice, isCallOption);
			Bars putContract_buy = CreateSyntheticOption(startDate, expiryDate, strikePrice-strikeDiff, isCallOption);

DrawLabel(PricePane, "Sell Put " + putContract_sell.Symbol +" at "+ Math.Round(putContract_sell.Close[bar],2), Color.OrangeRed);
			DrawLabel(PricePane, "Buy Put " + putContract_buy.Symbol +" at "+ Math.Round(putContract_buy.Close[bar],2), Color.OrangeRed);

PrintDebug("Sell Put " + putContract_sell.Symbol +" at "+ Math.Round(putContract_sell.Close[bar],2));
			PrintDebug("Buy Put " + putContract_buy.Symbol +" at "+ Math.Round(putContract_buy.Close[bar],2));

double FairValue = Math.Round(putContract_sell.Close[bar], 2) - Math.Round(putContract_buy.Close[bar], 2);
			PrintDebug("Fair Value = " + FairValue);

}

}
	
	
}[/code]

Eugene

#2

9/22/2019 5:25 AM

Your code creates synthetic puts. An important note in the Open Issues list regarding puts:

QUOTE:
Synthetic option issues:
The OHLC values of synthetic put contracts are incorrect (unlike calls) To be fixed in WL 6.9.21
If the price of the underlying is above the Put's strike prior to bar 30, then the Put is priced at zero. The opposite is true for calls.

So I'd recommend that you wait for build 6.9.21 which fixes puts.

CreateSyntheticOption is built upon Black Scholes model. You can find one in Community Components: Black Scholes formula. Greeks is a question of its own but its output isn't supported by WL.

Eugene

#3

9/22/2019 5:51 AM

While not directly related, you might derive some great Strategy code examples and explanations from these topics:

How to code "nearest term ATM call option"?
Backtesting historic predictions of optionable stocks

Partha

#4

9/22/2019 12:05 PM

Thanks Eugene....very helpful resources indeed...when we call the method CreateSyntheticOption
what value of V Volatility, % is passed in the Black Scholes model by WL?

Eugene

#5

9/22/2019 12:20 PM

When CreateSyntheticOption is called, the volatility parameter in the Black Scholes formula depends on the 30-period Historical Volatility DataSeries. It's not a fixed percent because it varies on a bar by bar basis.

Partha

#6

9/22/2019 12:26 PM

thanks thatz what I needed

Eugene

#7

9/22/2019 12:35 PM

Glad to help you.

Partha

#8

9/22/2019 2:25 PM

Eugene,

Ref http://www2.wealth-lab.com/WL5WIKI/HV.ashx

In the formula below, Span is 262...why is that?

DataSeries HV1 = HV.Series( Average, 20, 262 ); HV1.Description = "HV of Average Price";