Options premium = intrinsic value + extrinsic value. Intrinsic value is the in-the-money part. Extrinsic value is the time + volatility premium. Examples Call at $95 with stock at $100 = $5 intrinsic. Put at $105 with stock at $100 = $5 intrinsic. Formula Call intrinsic = stock - strike Put intrinsic = strike - stock Extrinsic = option price - intrinsic
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2 Comments
Canadian Investor@canadianinvestor · 6d
Quick simple and helps demystify the pricing. You have a wealth of information if you could put out a post explaining how implied volatility change option pricing that would help a ton of people Enjoy your knowledge drops
Tim McCarthy@tmccart1 · 6d
Thank you for posting this! I like selling in the money calls as a way of collecting premium and also getting a lot of downside protection
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