Options Complete Guide For Beginners

Chapter 6

Options are derivatives derived from another underlying asset like stocks or exchange index where buyer have the right to sell but not the obligation at a pre-determined price called as strike price.Typically options are contracts with expiry dates.Options are most difficult to understand and contains highest risks.To understand options completely,you need to know terms like “Strike Prices”, “Expiry dates”, Exercise, Greeks etc.

Options pricing

You need to understand how options are priced by the market.Be it a call option or put option,there is a pricing model behind it.In a layman terms there are 4 factors that affects the options pricing.

  1. Current market price value against the strike price of the option.
  2. The volatility of the market.
  3. Trend of the market
  4. Time remaining for the expiry of option.

Intrinsic Value

Intrinsic value is the real value of option as per current market prices.

 

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