A distinction is made between the intrinsic value and the time value of an option during its term. The time value depends on the assessment of the future price development of the underlying asset. The intrinsic value is calculated from the ratio between the daily price of the underlying and the strike price. The terms in-the-money, at-the-money and out-of-the-money are used to denote this relationship. – An option is quoted at the money if the strike price is below the spot price of the underlying. In this case, the holder of the option has made a profit. – However, if the option is at-the-money, then the strike price and the spot price of the underlying asset are (almost, nearly) equal; the option is at the threshold of any profit or loss. – An option is out-of-the-money if the strike price is above the spot price of the underlying asset; in this case, the holder of the option has made a loss. – See elasticity, option elasticity.
Attention: The financial encyclopedia is protected by copyright and may only be used for private purposes without express consent!
University Professor Dr. Gerhard Merk, Dipl.rer.pol., Dipl.rer.oec.
Professor Dr. Eckehard Krah, Dipl.rer.pol.
E-mail address: info@ekrah.com
https://de.wikipedia.org/wiki/Gerhard_Ernst_Merk
https://www.jung-stilling-gesellschaft.de/merk/
https://www.gerhardmerk.de/