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NEMO | Another thing to consider is that with options you are paying for time value along with intrinsic value.
The closer an option is to expiration the cheaper the cost of the option. The further away an option is from expiration the higher the cost of the option. Paying for time, or buying time, so a greater chance of the option to be 'in the money' at some point in that timeframe.
Also the closer an option strike price is to the actual commodity board of trade price the higher the option cost or value. Option strike prices further out of the money are cheaper because less chance of that option to be 'in the money'.
If you have trouble remembering which is which, I found to remember the L in call to be Long the market and if you purchase a Call you hope the market goes up. There is a T in Put and also a T in Short, so if you purchase a Put you hope the market goes down.
calL = Long = option to buy at strike price
puT=shorT = option to sell at strike price
Clear as mud I'm sure! | |
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What exactly is a put and call?
