Option Pricing & Premiums
The premium (price of option) is determined by many factors:
Intrinsic Value – Difference between current stock price and strike price. Example: If stock = ₹200, strike = ₹180 (call), intrinsic value = ₹20.
Time Value – Extra premium because of time left until expiry. More time = higher premium.
Volatility – Higher volatility increases premium (uncertainty = higher value).
Interest rates & dividends – Also affect option pricing slightly.
The most famous model for pricing options is the Black-Scholes Model, used worldwide.
Moneyness (ITM, ATM, OTM)
Options are classified as:
In The Money (ITM): Option already has intrinsic value. (Example: Stock = ₹250, Call strike = ₹240).
At The Money (ATM): Stock price = strike price.
Out of The Money (OTM): Option has no intrinsic value yet. (Example: Stock = ₹250, Call strike = ₹280).
OTM options are cheaper, but riskier. ITM options are costlier, but safer.
The premium (price of option) is determined by many factors:
Intrinsic Value – Difference between current stock price and strike price. Example: If stock = ₹200, strike = ₹180 (call), intrinsic value = ₹20.
Time Value – Extra premium because of time left until expiry. More time = higher premium.
Volatility – Higher volatility increases premium (uncertainty = higher value).
Interest rates & dividends – Also affect option pricing slightly.
The most famous model for pricing options is the Black-Scholes Model, used worldwide.
Moneyness (ITM, ATM, OTM)
Options are classified as:
In The Money (ITM): Option already has intrinsic value. (Example: Stock = ₹250, Call strike = ₹240).
At The Money (ATM): Stock price = strike price.
Out of The Money (OTM): Option has no intrinsic value yet. (Example: Stock = ₹250, Call strike = ₹280).
OTM options are cheaper, but riskier. ITM options are costlier, but safer.
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Feel free to ask any questions. I'm here to help!
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Email: skytradingmod@gmail.com
WhatsApp: wa.me/7678446896
関連の投稿
免責事項
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