From Theory To Practice

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Option Price Pieces

From Theory To Practice

Today, as part of our beginner series, we go all the way back to the starting blocks and talk about the basic components of an option’s price. For our traders that are early on in their trader careers, this will be a very important piece of knowledge. Thankfully, we quickly learn that the puzzle that is an option’s price has only two pieces: intrinsic value and extrinsic value. The stock price influences the intrinsic value, while all other non-price factors impact the extrinsic value. When we dive into the tastyworks platform, we see exactly how time and volatility (add link) factor into an option’s extrinsic value.

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