One analytical tool that options investors use
is a mathematical model for calculating theoretical options prices.
Most investors don't study the exact formula, since it is
quite complex. But it can help to be familiar with the variables
that go into the formula:
Those elements all influence an option's premium.
You should be aware of any changes to the volatility of the underlying stock, for example, since it will affect your
option's premium, and therefore your potential gain or loss
on your options position.
Benchmarks
Benchmarks are measurements that you can use to
judge the relative performance of the investment you're
interested in, compared to the market of which it's a part.
One benchmark many options investors use is the Chicago
Board Options Exchange (CBOE) Volatility Index, or
VIX.
VIX
is a compilation of the implied volatilities of S&P 500 index
options, and is used as a benchmark of how volatile investors
anticipate the S&P
500 index — and by extension, the stock market — will
be. Since volatility affects options prices, many options investors
use VIX to gauge the overall volatility in the market.
VIX
is a compilation of the implied volatilities of S&P 500 index
options, and is used as a benchmark of how volatile investors
anticipate the 