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Put option

Call, Put, Long, Short, Bull, Bear… Confused?

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 … Read more


Time Value of In The Money Put Options

Call options In the previous article we have explained why time value of at the money call options is higher than time value of deep in the money call options (other factors being equal). The reason is that the closer to at the money an option is, the more it limits your maximum risk from … Read more


Put Option Price, Intrinsic, and Time Value

This is the second part of the article about calculating intrinsic and time value of options. Here you can read the first part: Call Option Price, Intrinsic, and Time Value. In the money put option example Now consider a put option (giving the owner a right to sell) on J.P. Morgan stock, expiring in December … Read more


5 Basic Characteristics of Every Option

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 … 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


Strike Price and Intrinsic Value of Put Options

Intrinsic value In the article about strike price and intrinsic value of call options we learned that intrinsic value is the difference between the market price of the underlying stock and the option’s strike price. It moves together with the stock price, but can’t be negative. However, we only talked about calls. Put options are … Read more


What Is an Option?

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 … Read more