3.Call and Put Summary
|Summary of Put and Call Relationships|
|Stock Price>Strike Price||In-the-money||Stock Price<Strike Price|
|Stock Price=Strike Price
||At-the-money||Stock Price=Strike Price|
|Stock Price<Strike Price||Out-of-the money||Stock Price>Strike Price|
|Call Up (Stock Price-Call Price)||Intrinsic Value||Put Down (Strike Price-Stock Price)|
|Strike Price + Premium||Breakeven||Strike Price-Premium|
4. Premium Inputs
- Volatility - the greater the volatility or stock price movement, the more valuable is the option and the greater the premium.
- Intrinsic Value Amount - the more an option is in the money, the greater its intrinsic value. An at-the-money or out-of-the-money option has an intrinsic value of zero.
- Time Remaining Until Expiration - the more time to expiration the greater the option's value and vica versa.
- Interest Rates.
5. Option Strategies
|Bullish||Buy Calls - speculate on the stock\'s direction, lock in a price for little outlay, diversify holdings, protect a short position.||Write Puts - speculate on the stock\'s direction, increase returns from selling options, purchase price of stock reduced by premium received.|
|Bearish||Buy Puts - speculate on the possible downward direction of the stock\'s price, defer a decision, protect a long stock position.||Write Calls - speculate on stock\'s direction, increase returns from premium income received, lock in a sales price, protect a long stock position.|
Options: Advantages and Disadvantages
TradingGet the basics under your cap before you get into the game.
TradingTake advantage of stock movements by getting to know these derivatives.
TradingThe price of an option, otherwise known as the premium, has two basic components: the intrinsic value and the time value. Understanding these factors better can help the trader discern which ...
TradingThe primary drivers of an option’s price are the underlying stock’s current price, the option’s intrinsic value, its time to expiration and volatility.
InvestingWriting covered calls on stocks that pay above-average dividends is a strategy that can be used to boost returns on a portfolio, but it carries some risk.
TradingThe strike price of an at-the-money options contract is equal to its current market price. Options that are at the money have no intrinsic value, but may have time value.
RetirementCovered calls may require more attention than bonds or mutual funds, but the payoffs can be worth the trouble.
TradingIf you're bearish, you should compare the risk/reward characteristics of these two strategies.
TradingBetting on an expected move is fine, but one must understand the risks involved in a position - and consider the alternatives.