1. Options Pricing: Introduction
  2. Options Pricing: A Review of Basic Terms
  3. Options Pricing: The Basics of Pricing
  4. Options Pricing: Intrinsic Value and Time Value
  5. Options Pricing: Factors That Influence Option Price
  6. Options Pricing: Distinguishing Between Option Premiums and Theoretical Value
  7. Options Pricing: Modeling
  8. Options Pricing: Black-Scholes Model
  9. Options Pricing: Cox-Rubinstein Binomial Option Pricing Model
  10. Options Pricing: Put/Call Parity
  11. Options Pricing: Profit and Loss Diagrams
  12. Options Pricing: The Greeks
  13. Options Pricing: Conclusion

While the factors explained in this tutorial can explain much of an option's observable price behavior, supply and demand still play an important part and can (and do) override predictive option values created by using pricing models. A sustained imbalance of competing bids and offers can drive prices away from theoretically expected values.

Imbalances can be caused by factors such as a sudden political event or unexpected news regarding a particular stock. These factors cannot be quantified, and can have an effect on both option prices and the accuracy of price modeling. That being said, theoretical options pricing is a valuable tool that helps investors and traders anticipate price movements for option positions.

Understanding options pricing and the different analytic models available to shape your trading plan is an important part of trading carefully and intelligently. Try these techniques out in simulated situations and make sure you are comfortable with them before risking real money in the market.

Important Caution

Options involve risks and are not suitable for everyone. Option trading can be speculative in nature and carry substantial risk of loss. Invest only with risk capital or money that you can afford to lose. None of the information in this tutorial should be construed as a recommendation to buy or sell a particular security or to provide investment advice.


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