Explained Simply: Options 102, option pricing, Black-Scholes theory of options pricing, Moo Moo's option price calculator, and the greeks
In this Options 102 for layman, we will discussed about option prices and its component of intrinsic and extrinsic value. We will also discuss about Black-Scholes theory of options pricing and how the greeks affect the option's price. In this post we will use Moo Moo's option price calculator a lot, so after we are done, we will be an expert on how to use Moo Moo's option price calculator. So let's begin If you have not read Options 101 you can start from here doctorpot1: Explained Simply: Options 101 Option price component A option's pricing is made out of 2 components, and they are the intrinsic and extrinsic value. Extrinsic value is also known as time value. so in short intrinsic value + extrinsic value = option price. Let us understand the 2 terms first. Intrinsic Value: In simple term, this is the option's "real value" , because on expiration this is the only value left. This is the positive difference between the stock price and the strike ...