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Understanding Options: Strike Price & Types

The document discusses terminology related to options contracts, including strike price, exercise price, expiration date, American and European options, option premium, intrinsic value, and time value. Strike price is the price specified in the contract, while exercise price is the price the contract is settled at. American options can be exercised anytime until expiration, while European options can only be exercised on the expiration date itself. The option premium has intrinsic and time value components.

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27 views2 pages

Understanding Options: Strike Price & Types

The document discusses terminology related to options contracts, including strike price, exercise price, expiration date, American and European options, option premium, intrinsic value, and time value. Strike price is the price specified in the contract, while exercise price is the price the contract is settled at. American options can be exercised anytime until expiration, while European options can only be exercised on the expiration date itself. The option premium has intrinsic and time value components.

Uploaded by

saurabhsaraf
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd

Terminology of Option

Strike Price :- The price specified in the option contract is known as the
Strike price or the exercise price . This difference that spot price & future
Price . The strike price are specified at the intervals . While Choosing
Strike , you must calculate minimum move required to generate BEP
( Break Even Point ) and minimum profit

Exercise Price : Is the price at which the contracts is settled even by making
Full payment

Expiration Date :- Last date when the option expires

America Option :- American option are exercised at any time up to the


Expiration date

European Option :- European Option are exercised only on the expiration


Date itself.
1
Terminology of Option

The option Premium :- It is the Price of option, The option premium


Can be broken down into two components- intrinsic value & time value

The intrinsic value :- for in-the-money option is the absolute value of the
Difference between the current price of the underlying and the strike
Price of the option

Time Value of an option :- The time value of an option is the difference


Between its premium and its intrinsic value . Both calls and puts have time
Value . An option that is OTM or ATM has only Time value Usually.
1) Maximum time value exist when the option is ATM
2) The longer the time to expiration, the greater is an options time
value, all else equal . At expiration , an option should no time value.

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