When it comes to call options, the premium increases as a stock’s price climbs above the strike price. So, with our options calculator, let’s review how the inputs impact option prices (aka premiums)…Īs shown in the examples above, both Stock Price and Strike Price are major inputs. Although, most of them follow a very similar playbook. There are many formulas to determine option prices.
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And for more basics, here’s some insight into how to trade options. Although, option trading strategies can become much more complex. On the other hand, call options allow you to bet that share prices will increase. Said another way, put options allow you to bet that share prices will decrease. This allows you to buy shares in the open market for $35 and then sell them for $40.
For example, if ABC shares trade for $35, you could execute the put option that lets you sell shares at $40. As long as ABC corp shares trade below $40, your put option would be considered in-the-money. For example, let’s say you buy a put option on ABC corp at a strike price of $40 that expires in a month. When you buy a put option, it give you the option to sell shares at an agreed upon strike price up until the expiration date. Then you could turn around and sell them for $45 in the open market. For example, if ABC shares trade for $45, you could execute the call option that lets you buy shares at $40. As long as ABC corp shares trade above $40, your call option would be considered in-the-money. For example, let’s say you buy a call option on ABC corp at a strike price of $40 that expires in a month. When you buy a call option, it gives you the option to buy shares at the agreed upon strike price up until the expiration date.
So, let’s do a quick refresher on each before getting into how to price them. This calculator shows potential prices for both calls and puts.
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