-> “Options Premium” is the price paid by an option buyer to the seller for the right to buy (call option) or sell (put option) an underlying asset at a specified strike price before or on a predetermined expiration date.
a) Options Premium: The cost paid for the options contract, representing the right to buy (call) or sell (put) an asset at a set price.
b) Strike Price: The agreed-upon price at which the asset will be bought (for call) or sold (for put).
c) Intrinsic Value: Part of the premium is based on the real value if the option were exercised immediately.
d) Time Value: Part of the premium reflects potential future value until expiration.
Why Use It?
-> Options premiums provide a clear understanding of the cost associated with options contracts.
-> Understanding premiums helps in constructing options trading strategies that align with market expectations.
Analysis-> Instrument-> Options-> Options Premium
How to Use It:
-> On Stolo, the Options Premium feature offers an interactive graphical representation of call (ce) and put (pe) premiums.
-> Users can view premiums for up to 20 strikes from the At-The-Money (ATM) price.
-> Hovering over premium data points provides specific price information for each strike.
a) What is the significance of Intrinsic Value in options premiums?
-> Intrinsic value is the part of the premium that represents the “real” value of the option if it were exercised immediately. For call options, it’s the difference between the market price and the strike price (if positive). For put options, it’s the difference between the strike price and the market price (if positive). Intrinsic value can never be less than 0.
b) How does Time Value impact options premiums?
-> Time value is the portion of the premium that reflects the potential for the option to gain additional value before expiration. It decreases as the option approaches its expiration date, affecting the overall premium.
Factors that Affect Options Premium -> Link
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