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OPTION (Introduction to Option
Price of the option depends on the price…
OPTION
Introduction to Option
Price of the option depends on the price of the underlying, plus a risk premium.
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ELEMENT
Underlying stock price
Strike Price
Predetermined price at which the shares of stock will be exchanged if the option is exercised
Price of the underlying stock price itself for each stock there are multiple options at diff. price increments
:red_flag: If underlying prices increase, call price will increase, put prices will decrease
:red_flag: If underlying prices decrease, call price will decrease, put prices will increase
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Time to expiration
The longer the time until expiration, the increase the option price
The shorter the time until expiration, the decrease the option price
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Call & Put Options
Def : Contract bet. 2 parties to exchange a stock at a "strike" price by a predetermined date
CALL OPTION
Buyer : Has the right, but not an obligation to buy the stock at the strike price by the future date
Seller : Has the obligation to sell the stock to buyer at the strike price if the buyer exercises the option
PUT OPTION
Buyer : Has the right, but not an obligation to sell the stock at the strike price by the future date
Seller : Has the obligation to buy the stock the buyer at the strike price if the buyer exercises the option