Corporate Stock Option Value Estimator

 

Option to Buy One Share of Stock at the Exercise Price at or Before Option Maturity

Current Stock Price ($ per share)

Exercise Price ($ per share)

Remaining Option Maturity (Years)

Stock Dividend Yield (% per annum)

Stock Price Volatility (% annualized)

This algorithm applies the famous Black-Scholes option valuation methodology. Please be aware that the result below is INDICATIVE only! There are numerous other considerations specific to the option and option holder that we omit here. Such considerations include vesting, other exercise restrictions, dilution, existence of a secondary market, contract risk, dividend and share repurchase policy, and dispersion of volatility estimation.

Estimated Option Value ($ per share option)

Intrinsic Value Component ($ per share option)

Time Value Component ($ per share option)

The blue line above is the option value as a function of Stock price (x-axis). The red line is the "intrinsic value."  Intrinsic value is what you receive by exercising the option immediately. (By convention, we set intrinsic value to zero when the Stock price is below the Exercise price since option exercise is not rational in this condition.) When total option value is greater than intrinsic value, exercising the option now is not optimal. You lose the time value of the option.