# Call option time value formula

If you own a stock, your maximum risk is its market price. The option is in the moneyas its strike price is below the current market price of the underlying stock and you would be buying the stock cheaper with the option compared to buying the stock in the stock market. In fact a stock is like a call option with a strike price of zero call option time value formula the underlying asset is the stock itself. Now what would your total risk be in each case? Morgan stock for 43 dollars the strike price.

Morgan stock the underlying is trading at The price of the call contract must reflect the "likelihood" or chance of the call finishing in-the-money. Morgan stock for 43 dollars the strike price. In the at the money option example your total risk would be just the 2 dollars.

The worst case scenario is that you will be holding the option until expiration and the option will expire worthless. In the at the money option example your total risk would be just the 2 dollars. All information is for educational purposes only and may be inaccurate, incomplete, outdated or plain wrong. Your call option time value formula risk as the owner of this option is its market price which in this case equals only its time value.

Some of them are as follows:. The time value will increase as the option gets closer to the at the money area. Morgan stock is So what would you prefer to do? Tutorial 1 Tutorial 2 Tutorial 3 Tutorial 4.

Home Calculators Tutorials About Contact. Morgan stock is In fact a stock is like a call option with a strike price of zero and the underlying asset is the stock itself. A stock has no time valueas there is no optionality in it.

The intrinsic value of this option is zero. At the Money Options: Articles needing additional references from October All articles needing additional references.

On the options exchange this option is call option time value formula at 3. So your total risk as the owner of this option is its market price, equal to intrinsic value plus time value. In fact a stock is like a call option with a strike price of zero and the underlying asset is the stock itself. Tutorial 1 Tutorial 2 Tutorial 3 Tutorial 4.