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In finance, a price (premium) is paid or received for purchasing or selling options.This article discusses the calculation of this premium in general. For further detail, see: Mathematical finance § Derivatives pricing: the Q world for discussion of the mathematics; Financial engineering for the implementation; as well as Financial modeling § Quantitative finance generally.
Naked Put Potential Return = (put option price) / (stock strike price - put option price) For example, for a put option sold for $2 with a strike price of $50 against stock LMN the potential return for the naked put would be: Naked Put Potential Return = 2/(50.0-2)= 4.2% The break-even point is the stock strike price minus the put option price.
Here the price of the option is its discounted expected value; see risk neutrality and rational pricing. The technique applied then, is (1) to generate a large number of possible, but random, price paths for the underlying (or underlyings) via simulation, and (2) to then calculate the associated exercise value (i.e. "payoff") of the option for ...
Put option: A put option gives its buyer the right, but not the obligation, to sell a stock at the strike price prior to the expiration date. When you buy a call or put option, you pay a premium ...
It’s the price at which you can buy or sell.
Calculating fair value: By comparing implied volatility with historical volatility, you can determine whether an option is fairly priced. If IV is significantly higher than HV, it may suggest that ...
At each final node of the tree—i.e. at expiration of the option—the option value is simply its intrinsic, or exercise, value: Max [ (S n − K), 0 ], for a call option Max [ (K − S n), 0 ], for a put option, Where K is the strike price and is the spot price of the underlying asset at the n th period.
The product is sold at a discount, which is the option premium received by selling the put option. Using the example above, if the option premium is $2 (per share), the product is then sold at $9800. On the expiry day, if the stock is trading at or above the exercise price, the option is not exercised and the investor receives the full face ...