The pricing of options is greatly affected by volatility. Volatility will slowly rise as you get closer to critical events, such as a business earnings report. When investors wind down days, even minutes, following an earnings announcement, implied volatility fluctuates. Volatility crush is the term for a quick and abrupt drop in volatility. For example, …
Public Traded companies issue stocks and warrants to raise capital and attract investors. A warrant allows investors to purchase a stock set at a specific price and date. On the other hand, a stock option conveys the right to sell or buy the stock at a predetermined date and a certain price. Although options and …
Extrinsic value is obtained by subtracting an option’s market price and intrinsic value. It can be defined as an item’s value outside its intrinsic value. This value comes from the amount of money assigned to assets. External factors like the appearance and size of an item must be considered when measuring the extrinsic value of …
Understanding Extrinsic Value: The Complete Guide Read More »
An option’s contract value is always a combination of instinct and extinct value. Both of these components have their valuation calculations. The first component of the option’s price, i.e., intrinsic value, refers to the contract’s moneyness (this term is used to describe whether the contract is in the money, out of the money, or at …
In options trading, the term Gamma represents the rate of change in the option’s Delta. Similarly, the term Delta measures the rate of change in an options price with respect to the underlying asset. But where does Gamma come from, how is it used in underlying stocks, and Gamma’s hedging strategy? Read this post to …