[Help Teddy and Win Rewards] Understand the Price of Options

• Milk The Cow : Erm $10 premium for put with strike price $120 & stock price $110?
  
  Ahgaahga (estimate) maybe $6 to $10...
  Maybe twice of $4 = $8
  
  Hahaha, neither I know since I'm kinda a beginner too, like Teddy .
  It's not that important as the Moomoo apps has done all the calculation for us .
  
  Let's ask for some helps too = learn together
  @Dadacai, @moomoo Learn, @moomoo Learn SG

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• doctorpot1 : yo teddy, the math behind option pricing is hard, it uses Black-Scholes Option Pricing Theory to calculate the fair value based on the strike price, current price, time left, volatility and risk free rate of return.
  
  So let's work smart, and just use MooMoo's built in calculator instead so using the calculator, it should be 13.9 assuming all variables stays the same.

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• doctorpot1 : We can also use simple formula of premium = intrinsic value + time value for back of the envelope calculation.
  Since the call of 120 is OTM, with a premium of 4, we know that time value is 4 and intrinsic value of 0 (because you won't earn any money for exercising it).
  And we know for the ITM put, the intrinsic value is 10 because we can earn 10 if we exercise immediately. so we can calculate the premium (simplistically) to be 14 (10 + 4).
  of course this won't be 100% accurate as the actual model for option pricing is far more complex.

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• RageBubble : Hey teddy
  Hm I think on the brokers nowadays they show you the value on their platform and it’s rather complicated as it involves a formula to calculate the figures.
  Just go to options section in your broker and they should show you the details for each strike prices.

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• birdiebrog : Hey teddy
  Hm I think on the brokers nowadays they show you the value on their platform and it’s rather complicated as it involves a formula to calculate the figures.
  Intrinsic value is the value any given option would have if it were exercised today. Basically, the intrinsic value is the amount by which the strike price of an option is profitable or in-the-money as compared to the stock's price in the market.
  
  Just go to options section in your broker and they should show you the details for each strike prices.

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• Yogiyogi : Yo yo Teddy teddy bear, let's head down to the moomoo course.
  Strike price also known as premium price.
  Out-of-the-Money (OTM) Call: The stock’s price is below the strike price. Intrinsic value is zero.
  Intrinsic Value = Premium - Time Value
  Premium =time value=4
  
  In-the-Money (ITM) Put: The stock’s price is below the strike price. Intrinsic value is positive.
  Intrinsic value = 120 - 110=10
  Premium = intrinsic value + time value =10+4=14

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• Newbie Q : In this case, we should sell the put when the premium is equal or more than 120-110+4=$14 or buy the put when the premium is equal or less than $14.

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• Milk The Cow doctorpot1 :

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• Milk The Cow doctorpot1 : Ic. So, is 14 .

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• Milk The Cow Milk The Cow : Teddy ,  answer = 10 (IV) + 4 (Time value) = 14 for put premium.
  
  Hey, I will be losing if I put 10 instead of 14 (Well, moomoo brokers app saved me though with the calculations ). I sure learned something too .
  
  Why is like this?
  Because docrorpot1 (other investor) say so & why he say that? = because formula say so for the fair value .
  
  It's still good to know as u know if u are paying/buying slightly cheaper / more expensive . Well, I guess most won't care about it since the slightly is really by a bit.

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