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
InvestingGet the basics under your cap before you get into the game.
MarketsThe 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 ...
InvestingDiscover the option-writing strategies that can deliver consistent income, including the use of put options instead of limit orders, and maximizing premiums.
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.
TradingWriting 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.
TradingAn options premium is the amount of money that investors pay for a call or put option. The two components that affect options pricing are the intrinsic value and time value. Matthew is interested ...
InvestingThe 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.
InvestingOptions can be an excellent addition to a portfolio. Find out how to get started.
TradingCovered 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.