# Option concept

The owner of an option can decide to exercise it or not.

### Implied Volatility Explained - Options Trading Concept

Every option has limited life and after that time period it expires. American options can be exercised at any time before or at expiration. European options can be exercised only at expiration.

Some options trade on option exchanges and their contracts are standardized. Other option concept trade OTC over-the-counterwithout an exchange. Market Price and Intrinsic Value of Options Market price of an option or market value or option premium consists of intrinsic value and time value.

Market price is something totally different from strike price. Intrinsic value is the difference between the strike price and current market price of the underlying. Options whose option concept price is equal or very close to the current market price of the underlying asset are said to be at the money.

Other options, which have no intrinsic value, are said to be out of the money. Call options are in the money when their strike price is lower than the current market price of the underlying asset.

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Put options are in the money when their strike price is higher than the easy quick earnings and market price of the underlying asset. The more time is left to expiration, the higher the time value other things being equal.

Historical and Implied Volatility We distinguish historical and implied volatility.

Here you can find more information and resources on volatility. We can calculate historical volatility using historical data.

### Trading and Exercising Options

An example of option pricing models is the Black-Scholes option pricing model. Different options on the same underlying asset and same expiration can have different implied volatility.

The most important Greeks are delta, gamma, theta, vega, and rho.

- Options Basics: Overview of Option Terms and Concepts - Macroption
- Andrew Hecht Updated March 24, Options are derivative instruments.
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- Option (finance) - Wikipedia
- An equity option is linked to a specific stock.
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