{"id":4996,"date":"2021-07-17T16:53:30","date_gmt":"2021-07-17T08:53:30","guid":{"rendered":"https:\/\/slashtraders.com\/?p=4996"},"modified":"2025-09-29T17:31:35","modified_gmt":"2025-09-29T09:31:35","slug":"options-value","status":"publish","type":"post","link":"https:\/\/slashtraders.com\/en\/blog\/options-value\/","title":{"rendered":"Learn the Options Value Basics So You Can Buy Low Sell High"},"content":{"rendered":"<p class=\"wp-block-paragraph\">Have you noticed that the value of the options is different to the price of the underlying stock?<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The options prices depend on strike price, implied volatility and expiration date. Learn the factors that affect the value of options then buy low and sell high.<\/p>\n\n\n<\/p>\n\n\n\n<figure class=\"wp-block-embed is-type-video is-provider-youtube wp-block-embed-youtube wp-embed-aspect-16-9 wp-has-aspect-ratio\"><div class=\"wp-block-embed__wrapper\">\n<span class=\"0jk8gJ2CBvcb7GxZs5w9A4op3XUWjOSTPWgxYDatE4wMKKUEyhyQHReLzdNzAFder2nmRGhLY\"><iframe title=\"Understand What Affect Options Prices, so You Can Buy Low Sell High\" width=\"500\" height=\"281\" src=\"https:\/\/www.youtube.com\/embed\/vtwAgH-3mG4?feature=oembed\" frameborder=\"0\" allow=\"accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture; web-share\" referrerpolicy=\"strict-origin-when-cross-origin\" allowfullscreen><\/iframe><\/span>\n<\/div><\/figure>\n\n\n<p><\/p>\n\n\n\n<h2 class=\"wp-block-heading\">How to Calculate the Value of Options?<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">Trading options is similar to trading other commodities, you buy low and sell high.<\/p>\n\n\n\n<p class=\"wp-block-paragraph translation-block\">But options are tools to <a href=\"https:\/\/slashtraders.com\/en\/blog\/delta-hedging-strategy\/\" target=\"_blank\" rel=\"noreferrer noopener\">hedge against risks<\/a>, so the price of an option is similar to prices of insurance in that it depends on the value of the options themselves and the probability of assignment.<\/p>\n\n\n\n<blockquote class=\"wp-block-quote is-layout-flow wp-block-quote-is-layout-flow\">\n<p class=\"wp-block-paragraph\">Options Value = Intrinsic Value + Extrinsic Value<\/p>\n<\/blockquote>\n\n\n\n<p class=\"wp-block-paragraph\">The value of an option is the sum of intrinsic value and extrinsic value:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>The intrinsic value is the profit the option owner gets if the option is assigned right now. If there is no profit to be earned in an assignment, then the intrinsic value is 0.<\/li>\n\n\n\n<li>The extrinsic value measures the risk of assignment. The extrinsic value is high when the market price is close to the strike price, when IV is high, or when the time to the expiration date is long.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\">What Are ITM, ATM and OTM?<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">Depending on different relative positions of market price and options strike price, the options can be ITM, ATM or OTM:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>ITM (In The Money) is when the relative prices of the stock and the strike show a profit if assigned.<\/li>\n\n\n\n<li>ATM (At The Money) is when the market price equals the strike price.<\/li>\n\n\n\n<li>OTM (Out of The Money) is when the relative prices of the stock and the strikes show no profit to an assignment.<\/li>\n<\/ul>\n\n\n\n<p class=\"wp-block-paragraph\">If we use SPY as an example, now SPY stock price is about $435, from the perspective of Put option, when the strike price of Put is higher than $435, it is in-the-money ITM, the owner of this Put can fulfill the contract to earn the price difference, so the price of the option at this time has the intrinsic value as well as the extrinsic value.<\/p>\n\n\n<\/p>\n\n\n\n<figure class=\"wp-block-image aligncenter size-large\"><img fetchpriority=\"high\" decoding=\"async\" width=\"1024\" height=\"576\" src=\"https:\/\/slashtraders.com\/wp-content\/uploads\/2021\/07\/SPY-Put-ITM-ATM-OTM-1024x576.png\" alt=\"SPY Put ITM ATM OTM\" class=\"wp-image-5011\" srcset=\"https:\/\/slashtraders.com\/wp-content\/uploads\/2021\/07\/SPY-Put-ITM-ATM-OTM-1024x576.png 1024w, https:\/\/slashtraders.com\/wp-content\/uploads\/2021\/07\/SPY-Put-ITM-ATM-OTM-300x169.png 300w, https:\/\/slashtraders.com\/wp-content\/uploads\/2021\/07\/SPY-Put-ITM-ATM-OTM-768x432.png 768w, https:\/\/slashtraders.com\/wp-content\/uploads\/2021\/07\/SPY-Put-ITM-ATM-OTM-16x9.png 16w, https:\/\/slashtraders.com\/wp-content\/uploads\/2021\/07\/SPY-Put-ITM-ATM-OTM.png 1280w\" sizes=\"(max-width: 1024px) 100vw, 1024px\" \/><figcaption class=\"wp-element-caption\">Different SPY Put strike prices lead to ITM, ATM, OTM options.<\/figcaption><\/figure>\n\n\n<p><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">When the Put strike is at $435, this is ATM. There is almost no price difference between strike and market prices, so the intrinsic value is almost 0. But the risk of assignment is highest at ATM, so the extrinsic value is at maximum.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">When the Put strike is lower than $435, it is OTM. There is no profit to assign OTM options, so the intrinsic value is 0. There is only extrinsic value for OTM options.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">From the perspective of Call options, the state is ITM when the Call strike is lower than $435, because there is profit to be had if assigned. So the ITM Call option has both intrinsic and extrinsic values.<\/p>\n\n\n<\/p>\n\n\n\n<figure class=\"wp-block-image aligncenter size-large\"><img decoding=\"async\" width=\"1024\" height=\"576\" src=\"https:\/\/slashtraders.com\/wp-content\/uploads\/2021\/07\/SPY-Call-ITM-ATM-OTM-1024x576.png\" alt=\"SPY Call ITM ATM OTM\" class=\"wp-image-5017\" srcset=\"https:\/\/slashtraders.com\/wp-content\/uploads\/2021\/07\/SPY-Call-ITM-ATM-OTM-1024x576.png 1024w, https:\/\/slashtraders.com\/wp-content\/uploads\/2021\/07\/SPY-Call-ITM-ATM-OTM-300x169.png 300w, https:\/\/slashtraders.com\/wp-content\/uploads\/2021\/07\/SPY-Call-ITM-ATM-OTM-768x432.png 768w, https:\/\/slashtraders.com\/wp-content\/uploads\/2021\/07\/SPY-Call-ITM-ATM-OTM-16x9.png 16w, https:\/\/slashtraders.com\/wp-content\/uploads\/2021\/07\/SPY-Call-ITM-ATM-OTM.png 1280w\" sizes=\"(max-width: 1024px) 100vw, 1024px\" \/><figcaption class=\"wp-element-caption\">Different SPY Call strike prices lead to ITM, ATM, OTM options.<\/figcaption><\/figure>\n\n\n<p><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">When the Call strike is at $435, this is ATM. There is almost no price difference between strike and market prices, so the intrinsic value is almost 0. But the risk of assignment is highest at ATM, so the extrinsic value is at maximum.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">When the Call strike is higher than $435, it is OTM. There is no profit to assign OTM options, so the intrinsic value is 0. There is only extrinsic value for OTM options.<\/p>\n\n\n\n<figure class=\"wp-block-image aligncenter size-full\"><a href=\"https:\/\/slashtraders.com\/en\/pricing\/?utm_source=blog&amp;utm_medium=banner\" target=\"_blank\" rel=\"noopener\"><img decoding=\"async\" width=\"971\" height=\"120\" src=\"https:\/\/slashtraders.com\/wp-content\/uploads\/2022\/03\/slashtraders-trial-banner.png\" alt=\"slashtraders trial banner\" class=\"wp-image-7387\" srcset=\"https:\/\/slashtraders.com\/wp-content\/uploads\/2022\/03\/slashtraders-trial-banner.png 971w, https:\/\/slashtraders.com\/wp-content\/uploads\/2022\/03\/slashtraders-trial-banner-300x37.png 300w, https:\/\/slashtraders.com\/wp-content\/uploads\/2022\/03\/slashtraders-trial-banner-768x95.png 768w, https:\/\/slashtraders.com\/wp-content\/uploads\/2022\/03\/slashtraders-trial-banner-18x2.png 18w\" sizes=\"(max-width: 971px) 100vw, 971px\" \/><\/a><\/figure>\n\n\n\n<h2 class=\"wp-block-heading\">How Does IV Affect Options Prices?<\/h2>\n\n\n\n<p class=\"wp-block-paragraph translation-block\"><a href=\"https:\/\/slashtraders.com\/en\/blog\/market-volatility-hv-iv\/\" target=\"_blank\" rel=\"noreferrer noopener\">Implied Volatility (IV)<\/a> is the expected movement of the stock price by the market. <a href=\"https:\/\/slashtraders.com\/en\/tools\/high-implied-volatility-stocks\/\" target=\"_blank\" rel=\"noreferrer noopener\">High IV<\/a> means the market expects greater price movement to the underlying stocks, so the risk of the option assignment is high, leading to higher extrinsic value.<\/p>\n\n\n\n<p class=\"wp-block-paragraph translation-block\">We can compare two underlying with similar prices to see the impact of IV to options value. SPY and ROKU have similar prices right now, SPY is at $435 while ROKU is around $427. If we look at the IV of the respective stocks within the <a href=\"https:\/\/slashtraders.com\/en\/tools\/options-scanner\/\" target=\"_blank\" rel=\"noreferrer noopener\">Options Scanner<\/a>, SPY's IV is 9% while ROKU's IV is at 46%.<\/p>\n\n\n\n<table id=\"tablepress-12\" class=\"tablepress tablepress-id-12\">\n<thead>\n<tr class=\"row-1\">\n\t<th class=\"column-1\">Symbol<\/th><th class=\"column-2\">Last<\/th><th class=\"column-3\">Fair value<\/th><th class=\"column-4\">IV<\/th>\n<\/tr>\n<\/thead>\n<tbody class=\"row-striping row-hover\">\n<tr class=\"row-2\">\n\t<td class=\"column-1\">SPY<\/td><td class=\"column-2\">435.59<\/td><td class=\"column-3\">417.90<\/td><td class=\"column-4\">9%<\/td>\n<\/tr>\n<tr class=\"row-3\">\n\t<td class=\"column-1\">ROKU<\/td><td class=\"column-2\">427.12<\/td><td class=\"column-3\">286.87<\/td><td class=\"column-4\">46%<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n\n\n\n\n<p class=\"wp-block-paragraph translation-block\">Looking at the OTM Put options at $50 less than the market price that expires next month, we see SPY's $385 Put is worth $1.08, while ROKU's $380 Put is worth $12.85 per contract. So the options' extrinsic value is high <a href=\"https:\/\/slashtraders.com\/en\/blog\/iv-rank-vs-iv-percentile\/\" target=\"_blank\" rel=\"noreferrer noopener\">when IV is high<\/a>, and low when IV is low.<\/p>\n\n\n\n<figure class=\"wp-block-image aligncenter size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"576\" src=\"https:\/\/slashtraders.com\/wp-content\/uploads\/2021\/07\/SPY-ROKU-Put-IV-costs-1024x576.png\" alt=\"SPY ROKU Put IV costs\" class=\"wp-image-5019\" srcset=\"https:\/\/slashtraders.com\/wp-content\/uploads\/2021\/07\/SPY-ROKU-Put-IV-costs-1024x576.png 1024w, https:\/\/slashtraders.com\/wp-content\/uploads\/2021\/07\/SPY-ROKU-Put-IV-costs-300x169.png 300w, https:\/\/slashtraders.com\/wp-content\/uploads\/2021\/07\/SPY-ROKU-Put-IV-costs-768x432.png 768w, https:\/\/slashtraders.com\/wp-content\/uploads\/2021\/07\/SPY-ROKU-Put-IV-costs-16x9.png 16w, https:\/\/slashtraders.com\/wp-content\/uploads\/2021\/07\/SPY-ROKU-Put-IV-costs.png 1280w\" sizes=\"(max-width: 1024px) 100vw, 1024px\" \/><figcaption class=\"wp-element-caption\">Despite having similar stock prices, SPY and ROKU have vastly different IVs, so they have vastly different extrinsic values for similar Put options.<\/figcaption><\/figure>\n\n\n\n<h2 class=\"wp-block-heading\">Time Value of Options<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">In theory, the longer Date To Expiration (DTE) is, the higher chances of assignment, leading to higher extrinsic value.<\/p>\n\n\n\n<figure class=\"wp-block-image aligncenter size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"576\" src=\"https:\/\/slashtraders.com\/wp-content\/uploads\/2021\/07\/SPY-time-value-1024x576.png\" alt=\"SPY time value\" class=\"wp-image-5021\" srcset=\"https:\/\/slashtraders.com\/wp-content\/uploads\/2021\/07\/SPY-time-value-1024x576.png 1024w, https:\/\/slashtraders.com\/wp-content\/uploads\/2021\/07\/SPY-time-value-300x169.png 300w, https:\/\/slashtraders.com\/wp-content\/uploads\/2021\/07\/SPY-time-value-768x432.png 768w, https:\/\/slashtraders.com\/wp-content\/uploads\/2021\/07\/SPY-time-value-16x9.png 16w, https:\/\/slashtraders.com\/wp-content\/uploads\/2021\/07\/SPY-time-value.png 1280w\" sizes=\"(max-width: 1024px) 100vw, 1024px\" \/><figcaption class=\"wp-element-caption\">When all other conditions are equal, the Put option with longer DTE is more expensive.<\/figcaption><\/figure>\n\n\n\n<p class=\"wp-block-paragraph\">We compare two SPY OTM $385 Put options that expire at different times. The Put option is worth $1.08 at 37 DTE, while it is only worth 9 cents at 7 DTE.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">So when all things are equal, the longer the DTE, the more time value the options have, leading to higher extrinsic value.<\/p>\n\n\n\n<p class=\"wp-block-paragraph translation-block\">Now you know the different factors that impact options prices, you can brainstorm <a href=\"https:\/\/slashtraders.com\/en\/blog\/profitable-trading-system\/\" target=\"_blank\" rel=\"noreferrer noopener\">different strategies<\/a> to buy low and sell high to profit from options trading.<\/p>\n\n\n\n<p class=\"has-ast-global-color-4-background-color has-background wp-block-paragraph\"><a href=\"https:\/\/slashtraders.com\/en\/blog\/slashtraders-vs-sp500\/\" target=\"_blank\" rel=\"noreferrer noopener\">SlashTraders vs S&amp;P 500: 450% Outperformance, Verified Trades and How to Copy Every Alert<\/a><\/p>","protected":false},"excerpt":{"rendered":"<p>The options prices depend on strike price, implied volatility and expiration date. Learn the factors that affect the value of options then buy low and sell high.<\/p>","protected":false},"author":1,"featured_media":4997,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"plain-container","ast-site-content-layout":"normal-width-container","site-content-style":"unboxed","site-sidebar-style":"unboxed","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","ast-disable-related-posts":"","theme-transparent-header-meta":"default","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"set","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"footnotes":"","_wp_rev_ctl_limit":"5"},"categories":[3],"tags":[56,12,64,14,21,11],"class_list":["post-4996","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-blog","tag-cn","tag-en","tag-es","tag-options","tag-spy","tag-tw"],"_links":{"self":[{"href":"https:\/\/slashtraders.com\/en\/wp-json\/wp\/v2\/posts\/4996","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/slashtraders.com\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/slashtraders.com\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/slashtraders.com\/en\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/slashtraders.com\/en\/wp-json\/wp\/v2\/comments?post=4996"}],"version-history":[{"count":5,"href":"https:\/\/slashtraders.com\/en\/wp-json\/wp\/v2\/posts\/4996\/revisions"}],"predecessor-version":[{"id":13915,"href":"https:\/\/slashtraders.com\/en\/wp-json\/wp\/v2\/posts\/4996\/revisions\/13915"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/slashtraders.com\/en\/wp-json\/wp\/v2\/media\/4997"}],"wp:attachment":[{"href":"https:\/\/slashtraders.com\/en\/wp-json\/wp\/v2\/media?parent=4996"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/slashtraders.com\/en\/wp-json\/wp\/v2\/categories?post=4996"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/slashtraders.com\/en\/wp-json\/wp\/v2\/tags?post=4996"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}