Option Premium
Components of an Option's Price (also called the Premium):
Premium = Time Value + Intrinsic Value
Time value is the value that can be attributed to the possibility that the option will increase in value during the time before expiry.
Intrinsic value is the current value that could be realized by exercising the option and simultaneously liquidating the position at the same time.
For example: exercise a call option to buy XYZ at a strike price of $20, then sell XYZ at the current price of $25; in this example there would be an intrinsic value of $5.
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