Risk Management: The Premium
Title: What Determines the Price of an Option? 💵🔎
Content:
The Premium (Premium) is the price you pay to acquire an option. It consists of two fundamental components:
📊 The premium structure:
Intrinsic Value: The actual difference between the market price and the strike price (Strike).
Time Value: The value related to the remaining time before expiration and the expected volatility.
The farther away the expiration date and the higher the volatility, the higher the time value (and therefore the premium) will be.
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