jerbear Posted February 6, 2010 Share Posted February 6, 2010 Oh so the premium is the difference between the actual price and the strike price? Look up the heat transfer formula in physics and the Black Scholes option pricing model. They both give an idea of how options are priced. Link to post Share on other sites
Hot Carl Posted February 6, 2010 Share Posted February 6, 2010 Consider these basic examples since there are all kinds of strategies people can play. For ease of single glance calculation, I'm using round numbers v. real examples of percentages, prices, etc: Stock Future: Person A agrees to buy 100 shares of ABC minerals on Feb. 5, 2010 at $1/share. Person A will pay x % of this contract upfront like $10 and on Feb. 5, will have to pay the balance $90 and take delivery of the 100 shares. Stock Option: Call option - Person A buys 1 contract at the strike price of $1, whereby the underlying security is for 100 shares of ABC minerals at $1/sh with an expiry date of Feb. 5, 2010. Person A pays a $5 premium. When Feb. 5, 2010 comes around, Person A has the ability to let the option expire, losing only $5 or they can exercise their option at any time within the parameters of the rules and regs of option exercising, up to and including Feb. 5. If they choose to exercise the option, they pay $100 for 100 shares of ABC minerals. No, that's not right. Quit messing with his head. Link to post Share on other sites
Trialbyfire Posted February 6, 2010 Share Posted February 6, 2010 I think I get it TBF youre a good teacher Thanks. I actually suck at teaching normally due to impatience but you pick up really quickly. No, that's not right. Quit messing with his head. "That's two". Link to post Share on other sites
Hot Carl Posted February 6, 2010 Share Posted February 6, 2010 "That's two". That's two what? Link to post Share on other sites
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