§ 01
AAPL — Current Price. Open AAPL on the Ledge to see current values.
§ 02
Option Price = Intrinsic Value + Time Value
§ 03
| Factor | Effect on Time Value |
|---|---|
| More time to expiration | Higher time value (more time for favorable moves) |
| Higher implied volatility | Higher time value (bigger expected moves) |
| ATM options | Maximum time value (most uncertainty about outcome) |
| Deep ITM or OTM | Less time value (outcome more certain) |
§ 04
Time value decays to zero at expiration. If you buy options, you’re fighting time decay every day. The stock must move enough to overcome both the intrinsic value gap AND the time decay.
§ 05
Look at an options chain and compare the time value of options with different expirations (same strike). How much extra do you pay for an additional month of time?
§ 06
A $100 call is priced at $12 when the stock is at $105. If the stock stays at $105 until expiration, what’s the option worth?
§ 07
§ 08
You bought an AAPL $200 call for $5 when AAPL was at $198 and 45 days remained to expiry. Two weeks later, AAPL is at $215 and the option trades at $15.50. Break down the option's value components.
Five questions · AI feedback
Sit with the ideas.
A $100 strike call trades at $12 when the stock is at $108. What is the intrinsic value and time value?
Why: