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Dr. Jim Schultz Is Back and Breaking Down Option Pricing
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ticker lesson
Breakdown
0:07lesson
Welcome to know your options
- Jim Schulz returns to Tasty Network
- Weekly show for beginner traders
- Focus on option pricing basics
1:45lesson
Introduction to option pricing
- Options pricing has two components: intrinsic and extrinsic value
- Intrinsic value measures the worth of the option
- Extrinsic value includes volatility, time, and dividends
3:27lesson
Understanding intrinsic value
- Intrinsic value is the worth of the option to the long holder
- Call options give the right to buy at strike price
- Put options give the right to sell at strike price
5:23lesson
Long side of options
- Focus on learning options from the long side
- Intrinsic value is measured from the long holder's perspective
- Extrinsic value is more complex and will be explored later
7:13lesson
Intrinsic value calculation
- Intrinsic value is the difference between stock price and strike price
- Call options have intrinsic value if stock price > strike price
- Put options have intrinsic value if strike price > stock price
9:05lesson
Option pricing equation
- Option price = intrinsic value + extrinsic value
- Three components: price, intrinsic value, extrinsic value
- Understanding these components is key to option pricing
10:48lesson
Options chain structure
- Calls are on the left, puts are on the right
- In the money options are above the at the money strike
- Out of the money options are below the at the money strike
12:37lesson
In the money and out of the money
- In the money options have intrinsic value
- Out of the money options have no intrinsic value
- Focus on intrinsic value for beginners
14:28lesson
Intrinsic value examples
- 750 call has $8 of intrinsic value
- 763 put has $5 of intrinsic value
- Extrinsic value is the difference between option price and intrinsic value
16:22lesson
Put options and intrinsic value
- Put options give the right to sell at strike price
- Intrinsic value is strike price - stock price
- Extrinsic value is the remaining part of the option price
18:03lesson
Extrinsic value and option price
- Extrinsic value is the difference between option price and intrinsic value
- Extrinsic value includes volatility, time, and dividends
- Tasty platform provides extrinsic value directly
20:03lesson
Options with no intrinsic value
- Out of the money options have no intrinsic value
- Intrinsic value is zero for these options
- Extrinsic value is the only component of the option price
21:56lesson
Understanding no intrinsic value
- 763 call has no intrinsic value
- Intrinsic value is zero if strike price > stock price
- Extrinsic value is the only component of the option price
23:43lesson
Out of the money put options
- 750 put has no intrinsic value
- Intrinsic value is zero if strike price < stock price
- Extrinsic value is the only component of the option price
25:32lesson
Summary of option pricing
- Option price = intrinsic value + extrinsic value
- Intrinsic value is the worth of the option to the long holder
- Extrinsic value includes volatility, time, and dividends
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