Mr Amrutkumar
Asked about stock option pricing
http://www.traderji.com/options/77331-stock-option-pricing.html
Let me attempt to clear " Stock Option Pricing"
There are two component in price of any option
(a.)Intrinsic value
(b.)Time value
When thinking about an option's total price (intrinsic value and time value), it's a good idea to remember that options are derivatives. This just means that an option's price will change as the underlying stock, or index changes their price.
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*Intrinsic value is the amount of an option's price that is in-the-money.The remaining value is time value.
Keep in mind that out-of-the-money option prices are solely based on time value.
For a call option: Intrinsic Value = Spot Price - Strike Price
For a put option: Intrinsic Value = Strike Price - Spot Price
**Time value is the amount option buyers are willing to pay for the possibility that the option may become profitable prior to expiration due to favorable change in the price of the underlying. An option loses its time value as its expiration date nears. At expiration, an option is worth only its intrinsic value. Time value cannot be negative.
example- lets nifty spot trading @5850 while stricke price of 5800 CE trading @60
so intrinsic value is 5850-5800=50 , now remaining 10 is time value
Asked about stock option pricing
http://www.traderji.com/options/77331-stock-option-pricing.html
Let me attempt to clear " Stock Option Pricing"
There are two component in price of any option
(a.)Intrinsic value
(b.)Time value
When thinking about an option's total price (intrinsic value and time value), it's a good idea to remember that options are derivatives. This just means that an option's price will change as the underlying stock, or index changes their price.
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*Intrinsic value is the amount of an option's price that is in-the-money.The remaining value is time value.
Keep in mind that out-of-the-money option prices are solely based on time value.
For a call option: Intrinsic Value = Spot Price - Strike Price
For a put option: Intrinsic Value = Strike Price - Spot Price
**Time value is the amount option buyers are willing to pay for the possibility that the option may become profitable prior to expiration due to favorable change in the price of the underlying. An option loses its time value as its expiration date nears. At expiration, an option is worth only its intrinsic value. Time value cannot be negative.
example- lets nifty spot trading @5850 while stricke price of 5800 CE trading @60
so intrinsic value is 5850-5800=50 , now remaining 10 is time value
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