Option Epsilon (Dividend Sensitivity)
Computes the epsilon of a call option, also called psi: the premium's sensitivity to the asset's continuous dividend yield, that is, dV/dq. The larger the expected dividend, the lower the call's value, because part of the asset's return leaks to whoever holds the stock rather than the option. That's why a call's epsilon is negative and equals −S·T·e^(−qT)·N(d1). It's the Greek that ties pricing to the dividend yield. Enter the spot price, the strike, the interest rate, the term in years and the volatility.
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Option Epsilon (Dividend Sensitivity)
Computes the epsilon of a call option, also called psi: the premium's sensitivity to the asset's continuous dividend yield, that is, dV/dq. The larger the expected dividend, the lower the call's value, because part of the asset's return leaks to whoever holds the stock rather than the option. That's why a call's epsilon is negative and equals −S·T·e^(−qT)·N(d1). It's the Greek that ties pricing to the dividend yield. Enter the spot price, the strike, the interest rate, the term in years and the volatility.
The Greek nobody remembers: the dividend
The famous Greeks react to price, time and volatility. Epsilon, also called psi, looks after a variable usually left out of the conversation: the dividend. It measures how much an option's premium changes when the asset's expected dividend yield shifts. It sounds secondary, but on stocks that pay healthy dividends it makes a real difference to the price.
The logic is straightforward. A dividend is money that goes to whoever holds the stock, not to whoever holds the call. The more a company promises to distribute, the less the right to buy the stock in the future is worth, because you miss out on those payments. That's why a call's epsilon is negative: more dividend, less premium. The formula is −S·T·e^(−qT)·N(d1).
The calculation here is for a European call. Enter spot price, strike, interest rate, term in years and volatility. The result comes in price units per full change in yield; divide by 100 to read it per percentage point of dividend. It's an instantaneous sensitivity, like all Greeks, so it holds for the current scenario.
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The results provided by this tool are for general informational and educational purposes only and do not constitute professional, financial, medical, legal, tax or accounting advice. Always confirm important decisions with a qualified professional and official sources.