underlying market price

admin — Mon, 04 Jan 2010 17:17:15 +0000

The underlying stock price is normally the most significant factor affecting the price of an option. As mentioned earlier, in-the-money options enable holders to buy or sell the underlying shares at a better price than the prevailing market price. They therefore cost more than the equivalent at-the money and out-of-the-money options because there is more value in them. And whether an option is in-the-money
depends solely on the underlying price because the strike price is fixed. The difference between the strike price of an in-the-money option and the market price of the underlying stock is called the intrinsic value. For example, a call option with a strike price of $45 when the underlying market price is $50 has an intrinsic value of $5. However, it is possible that the option in this case will be traded above $5. Even out-of-the-money and at-the-money options, which have no intrinsic value, will normally have some value. This is because there are other factors determining the value of the option. These are called “extrinsic” factors. The extrinsic factors are time until expiration, dividend expectation, interest rate and volatility.

Underlying Stock strike price

admin — Sun, 03 Jan 2010 17:14:32 +0000

Every option is issued on an underlying instrument which can be one of a wide range of products – for example, a stock, a stock index, a commodity futures contract, a currency and etc. In this case, the underlying instruments are exchange-traded stocks. Your broker can inform you which stocks have options traded on them.The strike price, also known as the exercise price, is the price at which the option buyer and seller agree to trade the underlying stock, if the option is exercised.A call option whose strike price is below the market price of the underlying stock is in-the-money. Such an option allows the call holder to buy the shares for less than the current market price. A call whose strike price is above the underlying market price is out-of-the-money. Conversely, a put whose strike price is above the underlying price is in-the-money. This means the put holder can sell the asset for more than the current market price. A put whose strike price is below the underlying price is out-of-the-money.

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underlying market price

Underlying Stock strike price