{"id":4027,"date":"2012-02-15T11:23:53","date_gmt":"2012-02-15T18:23:53","guid":{"rendered":"https:\/\/www.optionsanimal.com\/?p=4027"},"modified":"2021-12-06T16:05:43","modified_gmt":"2021-12-06T23:05:43","slug":"learn-about-option-pricing","status":"publish","type":"post","link":"https:\/\/www.optionsanimal.com\/learn-about-option-pricing\/","title":{"rendered":"Learn About Option Pricing"},"content":{"rendered":"\n
By Greg Jensen The Greece situation is resolved right? The market is headed higher right?<\/strong><\/p>\n\n\n\n The VIX says the market is bullish, then another shoe drops and the market drops along with it. Trading this market can be difficult in the good times and impossible in hard times. The key to successfully trading this market is to have a sound understanding of options. Once you have an option position in place, whether it includes calls or puts, there are a few mains things that affect options pricing; stock price, time remaining in the option, implied volatility, risk free interest and dividends. These factors can seem very complicated at first. This is especially true when you look at the relationship between options pricing and the Black-Scholles model. However, if you look at these factors from a simple perspective, it can help you understand the basis behind the option instruments<\/a>, which in turn will help you be a better trader. Important advice: you generally do not want to sell options without having another option or stock to cover it. This is called naked selling. As the saying goes \u201cYou can lose more than your dignity going naked.\u201d Using a combination of stock, calls, and puts you can build an almost infinite number of trades to take advantage of any imaginable trend. This is the power of options.
OptionsANIMAL CEO and Founder<\/strong><\/p>\n\n\n\n
Stock Price
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This relationship is the simplest concept to understand. The fact that stock price impacts option pricing is obvious and is usually the first concept understood by people new to options. Calls go up when the stock goes up. Puts go up when the stock goes down. If the stock is trending bullish you can buy calls or sell puts. If the stock is trending bearish, you can buy puts or sell calls.<\/p>\n\n\n\n
Time Remaining In the Option
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It\u2019s intuitively obvious that if you want to control something for a longer period of time, it will cost more money. Just like that beach house down by the shore. Nightly rentals are going to be pretty expensive, let\u2019s say $750 per night. However, if you want to rent for a week, it\u2019s going to cost $4,550. And if you want to lease for the summer, it\u2019s going to cost you $40,500. If you are one of those people who love the beach year round, you can opt for the one-year lease at $73,000 for the year. On the face, those number look pretty expensive. But, let\u2019s break it down.<\/p>\n\n\n\n