Price logic
Intrinsic value plus time value
In simple terms: option price = intrinsic value + time value. Intrinsic value is the immediate exercise benefit, while time value is the remaining premium until expiration.
Example: A call option costs 8 EUR, spot is 105 EUR, and strike is 100 EUR. Then 5 EUR is intrinsic value and 3 EUR is time value.
The split in compact form
- Spot 105 minus strike 100 = 5 EUR intrinsic value
- Premium 8 EUR minus intrinsic value 5 EUR = 3 EUR time value
The key Greeks make these price moves easier to read:
- Delta How much does the option move when the underlying moves?
- Theta How much time value does the option lose per day?
- Gamma How much does delta itself change?
- Vega How much does price react to changing IV?
Small example calculation for the Greeks
Assume an option with Delta 0.45, Theta -0.08, and Vega 0.12.
- Delta If the underlying rises by 1 EUR, the option rises by roughly 0.45 EUR.
- Theta If one day passes, the option loses about 0.08 EUR under otherwise unchanged conditions.
- Vega If implied volatility rises by 1 point, the option gains about 0.12 EUR.
Sources: DeltaValue, Extrinsic value, DeltaValue, Option Greeks, LYNX, Option Greeks, LYNX, Theta