I’ve been trying to understand how options are priced, but the explanations I find online are too complex.
Looking for a straightforward breakdown of the basics. What factors actually affect an option’s price?
Anyone have a simple way to explain this without getting too technical?
Key factors:
• Underlying asset price
• Strike price
• Time to expiration
• Implied volatility
Higher volatility increases premiums. Longer expiration adds time value. Monitor daily changes to spot patterns. Use tight stops.
Option pricing isn’t rocket science. Focus on these: current price of the stock, strike price of the option, time left until expiration, and market volatility. The closer the stock price is to the strike, the more valuable the option. More time till expiration means more value too. Higher volatility increases premiums.
I’ve made good money keeping it simple. Don’t overthink it. Watch how these factors change day to day and you’ll start seeing patterns. Just remember, options can move fast. I once saw a position go from +50% to -30% in an hour when earnings surprised everyone. Always use stops and size your positions right.
Time to expiry, strike price, and underlying asset price are key. Volatility matters too. I made 17% last month focusing on those.
Option pricing boils down to a few main factors. Current stock price and strike price are the biggies. Time left and volatility play big roles too.
Learned that the hard way trading Apple options last year. Thought I had a sure thing, but time decay ate my profits fast.
Keep it simple at first. Track how these factors change daily and you’ll start seeing patterns. Just remember, options can be risky. Always use stops.
Man, I remember being in your shoes. The Black-Scholes model gave me headaches!
Basically, it’s about intrinsic value and time value. Intrinsic is the difference between strike and current price.
Time value depends on how long till expiry and volatility. More time, more value.
I once bought puts on Tesla thinking I had it all figured out. Lost 60% in a day when volatility dropped suddenly. Brutal lesson.