Hello, friends, in order to better understand options trading We'll need to know how to calculate the benefits of options And in order to have a better understanding about how the benefits of options is calculated we will need to learn how the price of options is defined So today, we are going to learn how the price of options is defined and calculated In order to learn it as fast as possible and as efficiently as possible Here we have a document Let's come to the document How is the options price is defined? So options price = options premium And it also equals to Intrinsic Value + Time Value As for Intrinsic Value, we'll discuss about it later As for Time Value, it has another name, Extrinsic Value It's affected by two factors First is how many days are there left before the exercise or strike of this options And second is the volatility As for how many days are there left before the strike of the options How can we see it？ So let's have a look at the picture below For example, EOS 1223 Call Options Do you still remember what's the meaning of EOS 1223 Call Options it means it is a call options and its
basic symbol is EOS Its strike date is December 23.
So how many days are there left before the strike date of this options Here we can seeit , it's 27 days So it's a monthly options and it's 27 days before the strike of this options So this is a basic understanding about the two factors of the options price So before we have an actual calculation about options price We need to know some basic concepts The first one is According to the direction of options, options can be divided into Call Options and Put Options So what is Call Option what is Put Options This one is BTC 1127 Call Options This one is BTC 1211 Put Options
options so what's Call Opions and what's Put Options If you think BTC price will rise before December 27th You actually believe it and you may buy Call Options If the price go as you wish, you have great chances to win benefits If you think price or BTC will drop before December 11th so you buy this Put Options You have great chances to win
benefits if price goes down So this is Call Options and Put Options According to Intrinsic Value, options can be divided into In the money options, Out of the money options, and At the money options As for in the money options, the intrinsic value is greater than zero As for out of the money options, intrinsic value equals to zero or it doesn't have intrinsic value at all As for at the money options, the intrinsic value is also zero In actual options trading For great chances, we will buy in
the money options of at the money options People won't always choose out of the money options So first, let's come to learn in the money options and before we get to know in the money options We need to understand strike price and spot price first of all Strike price is the fixed price and spot price is not not a fiexed one It's changing all the time As strike price is known by us once options is short What's the strike price.
Here, let's come to know it through an example For example, EOS 1223 Call Options The strike price is 2.3935 It's a fixed one and won't change from time to time And spot price is the price of the symbol options For example for this EOS 1223 Call Options The spot price is 2.574. But it's not a fixed one. It's is changing from time to time according to the actual price of EOS As for BTC maybe now it's 7133 USDT And it's changing.
Maybe tomorrow it's 8000 USDT. ETH is now, the spot price is 146.75 USDT Maybe tomorrow it will be 150 USDT It's changing all the time. So strike price is fixed one and spot price is not a fixed one If you think the price will rise in the future and buy call options and the price just moves as you wish That's to say, for call options, spot price > strike price Then it's a in the money options For example, let's see EOS 1223 Call Options The spot price is 2.574 and strike price is 2.3935 So actually, spot price > strike price So it's an in the money options If you think the price will drop, and you buy a put options and the price moves just as you wish That's to say, you buy a put options and the spot price < strike price Then it's also an in the money options.
Let's take LTC 1210 Put Options as an example The spot price is 46.17 and strike price is 61.43 So definitely, Spot Price < Strike Price And it's a put options. So it's also in the money options As for in the money options, the intrinsic value > 0 So let's have a conclusion For in the money options, for call options, spot price > strike price For put options, spot price < strike price All these two kinds of options can be called in the money options What is out of the money options Let's come to the instances If you think the price will rise and buy call options While the price doesn't move as you wish That's to say, for call options, spot < strike price Then it's an out of the money options Let's take ETH 1128 Call Options as an example Here, for this options, spot price is 146.85 Strike price is 160.2700 Definitely the spot price < strike price, and it's a call options So it's an out of the money options As for put options, if you think the price will drop and you buy put options And price doesn't move as you wish.
It rise a lot That's to say , for put options, if spot price > strike price It will be an out of the money options Let's take EOS 1223 Put Options as an example The spot price for this options is 2.5836 and strike price is 2.3805 spot price > strike price and it's a put options So the price doesn't go as you wish It's an out of the money options Let's have a conclusion of the out of the money options As for call options, spot price < strike price As for put options, spot price > strike price Just in the opposite of in the money options So it's out of the money options In actual options trading, we rarely choose out of the money options As for out of the money options Its intrinsic value is zero The last one is at the money options It's relatively easier for understanding No matter for call options or for put options spot price = strike price After we have had an understanding about in the money options, out of the money options, and at the money options Let's come to the actual calculation of options price So do you still remember that, options = options premium = intrinsic value + time value let's have an actual calculation about it let's come to ETH 1212 Put Options The strike price of this options is 188.9950 The spot price of this options is 147.2300 And it's a put options.
Its handicap price is 1.0869 And exchange rate here is here is 40:1 According to our calculating method Intrinsic value = Strike price – Spot price Then as we have a result, it should divide the exchange rate, 40 So the final result is 1.043375 So it's the intrinsic value of this options And the options price is 1.0869 And, options price = intrinsic value + time value Time value = options price – intrinsic value Time value = options price 1.0869 – intrinsic value 1.043375 = 0.0043525 This is how the options price, intrinsic value and time value is calculated Do you understand it? If not, we could have a look at the second example So let's take EOS 1223 Call Options as example The strike price is 2.3905 The spot price is 2.5740 The exchange rate is 1:1 and options price of EOS 1223 Call Options is 0.4742 Do you still remember how intrinsic value is calculated? Intrinsic value= （spot price 2.5740 – strike price 2.3905）/ 1 = 0.1835 So after we get the intrinsic value We will know the time value, because time value = options price – intrinsic value Time Value= options price 0.4742 – intrinsic value 0.1835 = 0.2907 Here we get the options price, the intrinsic value and the time value of EOS 1223 Call Options So after we have learnt the calculating method and instances We have understood how the options price is calculated If you still have any question about it You can leave your question in the comments We will give answers to them as soon as we see them Welcome to subscribe Binance JEX YouTube Channel to learn more knowledge on options trading Thank you so much for watching the video and see you next time