An option is an investor's way of making a bet that the price of a stock will go up (a call option) or down (a put option).
Options investors usually set boundary conditions, meaning a maximum and minimum price for the “underlying asset” (such as a stock) for the call or put options. The investor would most likely set the maximum value as the current price of the stock. If that price is greater than the call option boundary, the investor would not exercise the option, since he or she would lose money paying the current market price.
Same deal, more or less, for put options. If the price of the stock stays above your lowest boundary, you would not exercise the option, since you're waiting for it to drop down to a given price.
Let’s say you have your eye on the stock for Desktop Throwbacks, LLC, and are willing to buy if it goes down to $25. You could sit around and wait for this to happen (sounds relaxing), but a better use of your money might be to sell a put option, setting the boundary at the current market price of $28.
If the price stays at or above $28, the option buyer would not force you to pay that amount, and the option would expire. If it does go down to $25, you get the shares at the price you wanted. Yippee.
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Finance: What is Intrinsic Value (of An ...6 Views
Finance allah shmoop what is the intrinsic value of an
option All right this is brandi She owns a twelve
dollars strike price call option toe buy a share of
my fifteen minutes are up dot com a retirement home
chain for reality tv stars who recently gained self awareness
Well the stock is trading for fifteen bucks a share
of this moment Her strike price is twelve so the
intrinsic value of that option is fifteen minutes twelve or
three bucks that is it is three dollars in the
money and if brandy converted it into a share this
moment and then immediately sold the stock for fifteen dollars
in cash well she'd make three bucks But there's a
catch per call option doesn't expire for five weeks so
that three dollars in the money is actually worth more
than three dollars because she has data or time yet
to exercise and convert or just sell the option itself
So it's worth mohr because well a stock might go
up from fifteen dollars in overtime Stocks go up so
in the next five weeks well couldn't go up a
dime twenty cents twenty five cents and make that three
Dollars worth three ten three twenty three Twenty five Sure
sure it could happen So yeah that's The difference between
actual value and intrinsic value You get seita kickers in
there making the option's worth more than just converting them
into stock and selling them right there And yeah it
looks like our one and a half minutes are up
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