Understand What Affect Options Prices, so You Can Buy Low Sell High

Have you noticed that the value of options is different to the price of the underlying stock?

The prices of options depend on strike price, implied volatility and expiration date.

Today SlashTraders will share with you the basic factors that affect the value of options.

So you know when to buy low and sell high.

We'll talk about 4 key points today:
0:45 How to calculate the value of options?
1:40 What are ITM, ATM and OTM?
4:04 How does IV affect options prices?
5:17 Time value of options

Trading options is similar to trading other commodities, you buy low and sell high.

But options are tools to hedge against risks, so the price of an option is similar to prices of insurance in that it depends on the value of the risk event and the probability of assignment.

The value of an option is the sum of intrinsic value and extrinsic value.

ITM (In The Money) is when the relative prices of the stock and the strike show a profit if assigned.

ATM (At The Money) is when the market price equals the strike price.

OTM (Out of The Money) is when the relative prices of the stock and the strikes show no profit to an assignment.

High IV means the market expects greater price movement to the underlying stocks, so the risk of the option assignment is high, leading to higher extrinsic value.

In theory, the longer date to expiration (DTE) is, the higher chances of assignment, leading to higher extrinsic value.

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