Demonstrating Leverage in Option Markets

Make selections here about neccessary inputs to the Black-Scholes option pricing model. Latest quotes are fetched from Yahoo! Finance. We assume the option is purchased at the money. That is, strike, K, is equal to the quote fetched. You supply an expected return for the underlying, and the number of days to hold the option, and amount to invest - in addition to the usual required parameters for option pricing. This app returns the prices and returns from a position in the underlying versus a position in the option.

Illustrating leverage with Options

The table above shows that whatever your expected return in the underlying is, the return on the option price will be larger in absolute value.
The second table just multiplies the individual returns in the underlying and option position by the amount invested. For the same amount of money, you can generate much greater volatilty in your realized value with an option position. This is good if you are right and bad if you are wrong.