Options: Real World Example
Basic information
Buy AAPL $187.5 Call 3/1: This is the description of the option contract. It indicates that this is a call option for Apple (AAPL) stock with a strike price of $187.5, expiring on March 1st (3/1).
Bid $0.14 × 324: The bid price is the highest price a buyer is willing to pay for the option. In this case, it's $0.14. The "× 324" indicates the quantity of contracts being bid for at that price.
Ask $0.16 × 417: The ask price is the lowest price a seller is willing to accept for the option. Here, it's $0.16, with a quantity of 417 contracts being offered at that price.
Mark $0.15: The mark is the midpoint between the bid and ask prices. It represents a fair value for the option.
Last trade $0.14: The price at which the option was last traded.
Prev close $0.33: The closing price of the option on the previous trading day.
High $0.31: The highest price the option reached during the trading day.
Chance of profit 7.01%: This is the probability of the option being profitable at expiration, calculated based on various factors including the option's price, underlying stock price, volatility, etc.
Volume 38,480: Volume refers to the total number of contracts traded during the day.
IV 23.39%: IV stands for implied volatility, which is a measure of the market's expectation of future volatility of the stock price. It's an important factor in determining an option's price.
Low: $0.12: The lowest price the option reached during the trading day.
Open interest 27,213: Open interest refers to the total number of outstanding option contracts that have not been closed or exercised.
The Greeks:
Delta: Measures the rate of change of the option price with respect to changes in the underlying stock price. Represents the change in the option price for a 1$ change in the price. If the delta value is .5, that means for every 1$ increase in the stock price, the option price will increase by 50 cents.
Gamma: Measures the rate of change of Delta with respect to changes in the underlying stock price.
Theta: Measures the rate of change of the option price with respect to the passage of time.
Vega: Measures the rate of change of the option price with respect to changes in implied volatility.
Rho: Measures the rate of change of the option price with respect to changes in interest rates.
Synopsis of Information
The cost of this option would be 16$, the 16 cents premium multiplied by 100, for each stock in the option.
This option represents an agreement to buy AAPL stock at the strike price of $187.5 on March 1st. If the stock price rises above 187.5 by more than the cost of the premium, the buyer would gain profit by exercising the option or selling it as a higher price before expiration.
For example, AAPL goes to 200$ at or before expiration, with a strike price of 187.5$ and a premium of $0.16.
Intrinsic value = Stock price at expiration - strike price = $200 - $187.5 = 12.5 intrinsic value
Profit = Intrinsic value - premium paid = 12.5 - 0.16 = 12.34 profit per share
Multiplying this by the 100 shares included in the contract, it would serve to be worth 1,234$, excluding any trading fees or commissions. For selling on a market without much capital yourself, it is more profitable to sell the option rather than exercising it.
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