intrinsic value and european options
- Thread starter TraDaToR
- Start date
Hi,
"A simple explanation is that european style options are priced on a forward.
Thus, if interest rates are around 10% , spot is 100 and the one year put strike is 200, european option is priced on a forward around 110 (100*(1+10%)) .
Hence intrinsic value is 200-100=100 but the one year put value is 200-110=90"
http://www.elitetrader.com/vb/showthread.php?s=&threadid=178302
"A simple explanation is that european style options are priced on a forward.
Thus, if interest rates are around 10% , spot is 100 and the one year put strike is 200, european option is priced on a forward around 110 (100*(1+10%)) .
Hence intrinsic value is 200-100=100 but the one year put value is 200-110=90"
http://www.elitetrader.com/vb/showthread.php?s=&threadid=178302
Thanks MasterAtWork,
I understand that for stocks, but can it happen in a futures market?
Let's say Crude oil Dec 2010 is @ 70 , is it possible for Crude oil Dec 2010 60 european calls
to be < 10 for any reason? It cannot happen in american style because of exercice arbitrage, but european ?
Thanks.
I understand that for stocks, but can it happen in a futures market?
Let's say Crude oil Dec 2010 is @ 70 , is it possible for Crude oil Dec 2010 60 european calls
to be < 10 for any reason? It cannot happen in american style because of exercice arbitrage, but european ?
Thanks.
No, there is no stupid question about options.
Option rules are built on exceptions. Time value is often somehow just a concept.