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Exercising Options and Expiration

How does an option start to exist? Option is a derivative security and, said in the most general way, option is a contract. It is a contract between the buyer and the seller of the option. Buyer agrees to pay a price to the seller (the market price of the option at the time of … Read more


Strike vs. Market Price vs. Underlying’s Price

Three different prices In order to fully understand the basic principles of options, you must be sure to know the differences between the three frequently used terms and key parameters for every option. All three are prices, but their meanings are very different. These three kinds of prices are: Strike price of the option Market … Read more


In the Money, At the Money, Out of the Money

Moneyness of an option Moneyness is a strange sounding term, but it is sometimes used for describing the amount of intrinsic value an option has. All options belong to one of the three basic groups (and they can move between these groups as the market price of the underlying changes, as you will see below). … Read more


Option Intrinsic Value Formulas

Strike price and intrinsic value On the examples with Microsoft stock, we have explored the strike price and intrinsic value of call options and put options. To sum up and make it look a bit more scientific, let’s look at the formulas for calculating intrinsic value for calls and puts. Calculating intrinsic value of call … Read more