Options Pricing
Options pricing refers to the value of financial contracts that give one party the right, but not the obligation, to buy or sell an asset at a predetermined price before a specific date. The price of an option is influenced by several factors, including the current price of the underlying asset, the strike price (the predetermined price), time until expiration, market volatility, and interest rates. Two main models used to calculate options prices are the Black-Scholes model and the Binomial model. Understanding these elements helps traders assess potential profitability and risk when investing in options.
Additional Insights
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Options pricing refers to the determination of how much an options contract costs, which gives the buyer the right, but not the obligation, to buy or sell an underlying asset at a preset price before a specific date. Key factors influencing this price include the asset's current market price, the strike price (the agreed price), the time until expiration, volatility (how much the asset's price fluctuates), and prevailing interest rates. Models like the Black-Scholes formula are often used to calculate option prices, helping traders assess their risk and potential profit.