Equity to Options Conversion Calculator

You can scroll below to find an explenation of how the calculators work.

There are two calculators above.

One calculator helps you figure out what an equivalent options position would be when compared to a stock position. You'll enter a hypothetical Stock/ETF position or portfolio. You'll also give us some detail on the option contract you're using.

The other calculator helps you figure out what the equivalent Stock/ETF position would be when compared to the options you're using. It assumes you already own the options positions and want to check to see how much leverage you're using by owning them. If you want to know what size of an Apple (AAPL) position you have, by owning your 5 call options, we'll tell you.

If you're using options without using leverage then here's how you'd do it:

Stock options represent the ability to control a stock position. Therefore you're using leverage, which can be super helpful and reduce risk or it can increase your risk, depending on how you use it. Like a brand new Ferrari, it can reduce your risk or increase it. It all depends on you.

If $10,000 would be your position size when buying a stock, then instead of buying the stock, you may decide to put $2,000 into its call options (which hypothetically represent a $10,000 position) and then keep the remaining $8,000 on the side, and consider that to be one $10,000 position. ($2,000 is used for the calls and $8,000 is set aside somewhere, in cash or some interest bearing thing that is virtually risk-free, like money market or short-term Treasurys).

So if that $2,000 doubles, that would really represent a 20% gain on your entire position. $2,000 is 20% of your original $10,000.

The difference is, since you used this strategy, you're taking on much less risk than the stock owner with bigger profit potential.

How do the calculators work?

I'll create a video for this soon. But for now, let me first preempt any confusion by telling you what "notional value" is and I'll compare it to what we are doing here...

Traditionally, most stock options represent the ability to trade 100 shares of stock. If you own a January 40 call on Delta Airlines (DAL), you own something that gives you the right to buy 100 shares of DAL at $40. So they say the notional value is $40 x 100 = $4,000 notional value.

But I don't find that to be very useful at all.

Every option contract behaves differently and you'll know how it should behave based on "the greeks, like "Detlas", which tell you how sensitive the price of the option is to that of the stock.

So even though the notional value is $4,000, that doesn't mean it's similar to owning $4,000 worth of stock. If the delta of the call is 0.20 then the position will gain or lose 20 cents when the stock advances or declines by 1 full point. However if the delta is 0.90, it will gain or lose 90 cents. That's a big difference (since each option contract typically represents the ability to trade 100 shares, "70 cents" per options contract means $70.00).

Notional value isn't very useful.

So I coined the term "Delta notional value". It considers the delta. If you own a call option and it has a delta of 75, then your call option will go up or down by $75.00 when the stock advances or declines by one point.

Therefore, if you own 1 call option, then it's like owning 75 shares. If the stock is at $50.00, that is like having a stock position valued at (75 x $50.00 =) $3,750.

THE FIRST CALCULATOR - Equity to Options

So the first calculator can help you figure out how much money you'd want to commit to an options position based on the amount of "delta notional value". Owning 1 call, in the example above, is like having a $3,750 position in the sock. So if you buy 100 call options that happen to be trading for $4.00, that may cost you $40,000 to take the options position but it's like owning $375,000.00 worth of stock.

The good news is, first of all you can't lose more than you put into the stock so if the stock is cut in half, that $375,000 would lose $187,500. You'd lose $40,000. But secondly, as your stock declines, your call option becomes less sensitive to that of the stock.

With options that I suggest using, you're losing less on the downside than you'd make on the upside. Super cool.

THE SECOND CALCULATOR - Options to Equity

It goes in both directions. Meaning, you can use it to create a hypothetical position or even hypothetical "synthetic" stock/ETF portfolio.

In other words, when you want to buy stock options, you can do so while confidently understanding what the stock/ETF position size would be if the options position were actually a stock position.

Let's start with the Delta.

The Delta describes how sensitive an options price is to that of the underlying stock/ETF.

So if you own a call option on Apple (AAPL), and that call option has a Delta of 0.81, that would be sort of like owning 81 shares of AAPL... in a sense (I'll explain in a moment).

It's important to note that the Delta changes with the stock price. It will probably change a few minutes after you buy the option.

Another important note is that the Delta represents the amount by which the option will move... when the stock moves up or down by one point.

So in our AAPL example, if AAPL goes up or down by a point, that option should go up or down by about 81 cents. We said the Delta was 0.81.

But that is NOT to say that if AAPL moves 10 points, that the option will move by 8.1 points. Again, the delta changes as the stock price changes.

When AAPL goes up, the delta of a call option would go up (at its own pace). Hypothetically, if AAPL goes up by 5 points, the Delta might go from 0.81 to 0.84.

The actual shares of stock have a Delta of 1.00.

When the stock goes up by a point, you make $1.00 for every share. 100 shares of stock gaining one point means the owner made $100.00. Meanwhile, the owner of a call option that has a delta of 81 would make $81.00.

But as the owner of the call option, as the price of AAPL goes up, you're making more and more money per point. When the delta moves up to 0.82, you're making $82.00 per point, and so on.

Considering the fact that the owner of a call option with an 82 delta would make $82.00 if the stock went up a point, we can say that experience was like owning 82 shares of stock.

Again, 82 shares of stock is going to give you the same results as the owner of an option with a delta of 82. (By the way, for short hand, I just said the delta was "82". That's how option traders talk because calls are technically quoted as a positive... like 0.82... while puts are quoted as a negative... like -0.82... so it's just easier to say "82" for whichever type of option. It's sort of an understanding among options traders.

That's another story but we'll stick to the point here.

The calculator allows you to enter the delta of your option. And we just said "Deltas are sort of like shares" - just for a one point move. The calculator pretends the deltas you own are shares of stock and it tells you what the value of that is.

So let's assume the stock trades at $45.00 per share.
The calendar multiplies the deltas (instead of shares) by the price of the stock.

82 deltas X $45.00 = $3,690.

If the stock goes up or down by a point (to $46 or to $44), then your position should go up or down by $82.00 (to $3,772 or to $3,608)

See how helpful that is? Each option contract represents a stock/ETF position worth $3,690 at the time of purchase.

And since you'll tell the calculator how many option contracts you own, it will factor that in.

With the stock/ETF price of $45.00 and the option having an 82 delta, we know 5 of those call options would basically be like having $18,450 invested in AAPL stock.

If $18,450 seems like a big stock position for you, then the calculator just helped you figure out that your option position might be too big.

Of course, it also helps to know how volatile your stock or ETF typically is.
True Market Insiders has a goal of creating lots of tools that help you manage your money and volatility factoring into the equation will be something we roll out down the road. But just understand that owning $18,450 of a small-cap biotech stock has one set of implications on volatility, while a sector ETF on the Biotech sector (like XBI) has a very different set of implications. It's less volatile.

Disclaimer: The information provided by this tool serves as a general guide and educational resource and should not replace professional financial advice. Please do not base your financial or investment decisions solely on this tool's calculations. While we strive to provide accurate estimations, we cannot guarantee their absolute accuracy or definitiveness.

True Market Insiders does not assume responsibility for any financial decisions you make as a result of using this tool. The reliance on this tool and its provided information is at your own risk.

Before making any investment decisions, we strongly advise you to consult with professional financial advisors who can take into account your individual circumstances. Please bear in mind that investing in financial markets carries risks and past performance is not a reliable indicator of future results. Always conduct your own research and do not invest more than you can afford to lose.

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