When you’re trading options, one of the most important questions you can ask is: “Is this option overpriced, underpriced, or fair value?” Having a reliable benchmark can give you confidence in your decisions—and that’s exactly what Market Chameleon’s Custom Options Theoretical Value Model is designed to provide.
This powerful tool allows you to compare real-world option prices to calculated theoretical values based on historical data and volatility conditions. Even better, you can customize the parameters to reflect the specific market context you want to analyze.
Access the tool here:
https://marketchameleon.com/Overview/MRK/OptionChain/
Think of theoretical values like a home appraisal for option prices. Just as real estate investors compare property prices to similar homes to determine fair value, options traders can compare the current market price of an option to historical benchmarks.
This comparison gives you perspective. Are options currently trading rich compared to historical norms? Are they underpriced given recent volatility? By answering these questions, you can make more informed decisions rather than relying on gut instinct or surface-level pricing.
One of the biggest advantages of Market Chameleon’s theoretical value model is flexibility. You can adjust multiple parameters to view the market through different lenses, including:
Historical Data Range:
Choose how far back you want to look—1 year, 10 years, or more. A shorter time frame reflects recent conditions, while a longer range gives a broader perspective.
Earnings Impact:
Earnings events are major volatility drivers. The model automatically adjusts for whether the option’s expiration includes an earnings report—but you can override this setting to include or exclude earnings periods as you prefer.
Implied Volatility (IV) Range:
Volatility regimes matter. By default, the model uses a dynamic IV range to pull historical periods with similar volatility, but you can set your own custom IV range for deeper analysis.
In the webinar, we analyzed an August 15th MRK straddle (buying both the $84 call and put). The market price was $6.02, but what did the model say it was worth?
Historical Stock Return Model:
Based on similar historical moves, the average theoretical value was $3.45, suggesting the current market price was significantly higher.
Implied Volatility-Based Model:
Looking at how options were historically priced under similar volatility conditions, the tool displayed average, median, high, and low theoretical values—helping you understand where current pricing sits within the historical distribution.
Win Rate & Probability of Touch:
The model also calculated:
Win Rate: How often, historically, the stock moved enough by expiration to make the market price profitable.
Probability of Touch: How often the stock hit that price at any point before expiration.
These insights help you evaluate whether the market price reflects reasonable expectations—or if it seems stretched.
The best part? You can save your custom settings as defaults. So if you prefer looking at the last six years of data, using dynamic IV ranges, and including earnings periods, those settings will apply automatically to every analysis you run. No need to reset parameters each time.
Options pricing isn’t one-size-fits-all. By leveraging a customizable theoretical value model, you can:
Compare market prices to historical norms.
Understand volatility-adjusted pricing scenarios.
Analyze options with and without earnings risk.
Make informed decisions with confidence—not assumptions.
This tool doesn’t predict the future, but it gives you a structured way to evaluate risk and uncover potential opportunities—a critical advantage for self-directed traders.
Start analyzing options with the Theoretical Value Model here:
https://marketchameleon.com/Overview/MRK/OptionChain/
Financial Disclosure:
This blog is for educational and informational purposes only. It is not intended as financial advice and does not constitute a recommendation to buy, sell, or hold any security. Always do your own research and consider your risk tolerance before making investment decisions.