3 Questions
What influences the value of an option?
Underlying asset's price, strike price, time until expiration, volatility, and interest rates
When is an option 'at the money'?
When the asset's price is equal to the strike price
What does it mean when an option is 'in the money'?
Profitable to exercise
Study Notes
Influences on Option Value
- The value of an option is influenced by several factors, including the underlying stock price, volatility, time to expiration, interest rates, and dividends.
Option Moneyness
- An option is 'at the money' when the strike price is equal to the current market price of the underlying asset.
- An option is 'in the money' when the strike price is favorable in comparison to the current market price of the underlying asset, resulting in a profit for the option holder.
- For call options, 'in the money' means the strike price is below the current market price, while for put options, it means the strike price is above the current market price.
Test your knowledge of options trading with this quiz. Explore the factors that influence the value of an option, including underlying asset price, strike price, time until expiration, volatility, and interest rates. Understand the concepts of "in the money," "at the money," and "out of the money" options.
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