The Basics Of Option Prices
Options trading can seem like a complex maze to the novice, but understanding how these financial instruments are priced is crucial for any investor looking to use them in their portfolio. An option is a contract giving the buyer the right, but not the obligation, to buy or sell an underlying asset at a specific price before a certain date. But what determines their price?
Options premiums aren’t simply governed by supply and demand. Instead, they result from an interplay among several key factors, each pulling the price in different directions, including the underlying stock price and the time left until expiration.
Below, we’ll break down the fundamental components of options pricing, making them accessible even to those who…
