Analogies for extrinsic value.

[Wheezooo]

Coincidentally, I just came across this explanation on Stack:

As an analogy, consider people betting on an (American) football game between Team A and Team B.

Let's make buying the option analogous to betting on Team A. Then selling it is analogous to betting against Team A.

The sale price of the option is analogous to the odds a bookie will offer.

The expiration date is analogous to the end of the game.

Being OTM is analogous to Team A being behind. If you want to sell an option, then you are betting against Team A, and you are asking the buyer to bet for them to win.

If Team A is behind, but it's only the first quarter, then there's still a chance that Team A will have a comeback. But as the game goes on, the probability of that happening (given a constant score differential) goes down.

Similarly, if the stock price stays the same, then as time goes on the price of an OTM option goes down. This is known as "theta".

If you call up a bookie right before the end of the game and tell them that you have, say, $1000 that you want to put down on Team A losing (so you're asking the bookie to bet that Team A will win), the bookie would have to offer really short odds for it to be fair; for instance, they might have to offer $1 to your $1000. And the hassle of setting up the bet is probably worth more than the $1. So they'll just refuse to take that bet.

Way beyond where I need to go with this, and I have found two things to keep away from for someone who doesn't know options, selling is bad, puts cause immediate brain farts, but I tremendously appreciate the assistance. Thank You.

 

[tommcginnis]

douchebaggio writes:
"...McG is retarded. You're doing yourself a disservice by not blocking him."

Hey! Dickless! Still lacking the personal testes to publish under your own name, are you?
Ironic that you'd recommend "blocking" when you yourself spend so much time maneuvering around to write these posts, dontcha think? (Or maybe, moronic is more your speed, eh. Whatever.)

I'm sure that when your ego grows to reach normal-adult size, and your pharmaco-bloating recedes to the point where you can publish a not-three-decades-old picture of yourself (and still get all of you in the shot), you can self-satisfy yourself like you just can't do right now, and you won't have to drop turds in the social punchbowl like you do now, in order to get your (shriveled) rocks off. That will be a happy day for all of us. Really.

Sheeesh. It does bring up another moron from another great movie, though....