To The Moon

Hello everyone, have you learned my first three posts?

What is an Option?

How to Calculate the Gain & Loss of Options?

What is a Covered Call？Option Strategy Series 1

In this post, follow me to look at the classification of options. Common options are mainly divided into three types, in-the-money options, out-of-the-money options, and at-the-money options.

In-the-money options: The strike price is lower than the current price of the stock.

Out-of-the-money options: The strike price is greater than the current price of the stock.

At-the-money option: The strike price is equal to the current price of the stock.

The value of an option consists of two parts, time value and intrinsic value.

Time value, as the name implies, it will gradually return to zero with the loss of time. So, it is easy to find the premium will more expensive when time goes by, even with the same exercise. This is the time value.

It is the same as insurance. If the price for one year is $100, the total price for two years of insurance will be more than $100. When the insurance period is longer, the price will be higher.

It is also available for options. Option sellers who fulfill their commitments for a longer period of time tend to receive higher premiums.

Both out of the money options and at the money options are composed of time value. Before the contract expires, if the price of the stock rises more than the strike price + premium, there is an opportunity to make a profit, otherwise lose money.

In the money options are composed of time value and intrinsic value, current price - strike price = intrinsic value, premium - intrinsic value = time value.

In options trading, the risk of out-of-the-money options is the greatest. If the purchased out-of-the-money options are converted into in-the-money options, there will be more choices in the future.

Time is an important factor of options, be cautious when choosing options! If you can't confirm your choice, in-the-money options are also a good idea. Although someone earns tons of times money from options, it is a small probability event after all.

For call, an option whose strike price is higher than the current price is an out-of-the-money option, and an option whose strike price is lower than the current price is an in-the-money option.

For put, an option whose strike price is lower than the current price is an out-of-the-money option, and an option whose strike price is higher than the current price is an in-the-money option.

Investopedia explains:

✅ Suggest following @Wayneqq

• ​Demystifying Options Part 1​
• ​Demystifying Options Part 2​
• ​Demystifying Options Part 3​
• ​Demystifying Options Part 4​
• ​Demystifying Options Part 6​
• ​Demystifying Options Part 7​
• ​Demystifying Options Part 8​
• ​Demystifying Options Part 9​
• ​Demystifying Options Part 10​

📒If you want to know more details about Tiger Paper Account, you can click here to watch【Video version of Guidance for Options Paper Account】