![]() ![]() Only in-the-money options (call strike stock price) carry what's known as intrinsic value, which is all the contract has left at expiration. ![]() Options can be in-the-money, at-the-money or out-of-the-money, depending upon their strike price's relationship to the underlying asset's price. ![]() Other factors, like dividends and interest rates, also play a role – though in many short-term and day-trading options strategies, these are effectively incidentals.įirst, the share price of the underlying asset determines the so-called "moneyness" of the option. There are three primary components that impact an option's price, or premium: In this scenario, the trader would "buy to open" a call or put contract, and then "sell to close" the contract once the profit target or stop-loss was triggered.Įqually important is to understand the multi-pronged factors that influence the price of a derivative as compared to its underlying asset. Traders looking to capture a quick directional move in the underlying stock would be best suited to straightforward call and put buying strategies. In fact, while the well-timed purchase of a call option would grant the holder the right to buy those shares at a discount to market prices, the impressive fungibility of options means there are actually strategies better-suited to acquiring stock than a straightforward call purchase – such as the cash-secured put. Instead, they buy and sell options – sometimes in various combinations known as "spreads" – with the intent of profiting from changes in the premiums of the option contracts. However, many active options traders never plan to touch the underlying shares themselves. Options trading allows investors to speculate on a stock's directional move, but there are some key concepts to learn before jumping in.īy definition, options are contracts that entitle the holder to buy or sell shares of the underlying asset at a specific price by a specific date. ![]()
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