Terminology of option positions may be confusing
Sometimes people have a long put position (they own puts) and they say they are short. They mean their exposure to the underlying stock’s price movement is similar to a short position in the stock (they expect to make a profit when the stock falls).
But in fact the security [...]
What does time value of options depend on?
While an option’s intrinsic value is easy to calculate just by looking at its strike price and the underlying’s market price, time value doesn’t have any simple and quick formula like this. There are more factors influencing time value of an option. Among the most important are time [...]
Calculating intrinsic and time value of options
This article might help you in case that you don’t fully understand the differences between an option’s market price, intrinsic value, and time value. It will show you how these three are related and how to easily calculate intrinsic and time value of an option, when you know the [...]
What defines every option
Let’s summarize the basic characteristics (or parameters) which define every option. They are:
Underlying asset
Call vs. put
Strike price
Expiration date
American vs. European
Underlying asset
Option is a derivative security, a contract giving the owner (buyer) of the option the right (but not the obligation) to buy or sell a defined quantity of a defined asset. This [...]
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 options
Call intrinsic [...]
Option’s strike price
Options represent a right, but not an obligation. There are two types of options, calls and puts. Call gives you the right to buy a stock, while put gives you the right to sell a stock. One question may come to your mind now. At what price can I buy or sell the [...]
This is an introductory article to options. It explains why they exist, the way they work, and some basic terms like call, put, or underlying.
Options around us
Let’s ask the very basic question that is frequently asked by people who don’t know much (or anything) about options. So, what is an option?
You’ve heard that word many [...]
