AAPL Stocks Trading – How Intrinsic and Extrinsic Values Influence the Stock Price

When an investor takes an option, such as a put or call option, it is referred to as an “AAV” for an underlying security. Options contracts specify a date by which the security must settle or have accrued and be convertible to a specified amount of money, at the end of the period of the option.

If the time value of money (the expiration date) is reached before the option contract expires, a profit is realized by the purchaser (called the writer) from the seller (called the writer). This profit is referred to as the intrinsic value of the option. In other words, if the price paid to acquire the AAPL option equals the value of the option, the writer will earn a profit.

Options contracts are normally written for one year or more in advance. The underlying asset (the security) is not always cash. It may be a stock, bond, or other security. However, if it is cash, the holder of the options contract usually pays a premium to the underwriter on the day of the exercise. The premium paid by the holder is referred to as the “premium” and is recorded as a negative number on the date of exercise.

The two primary components of the Intrinsic Value of Options (IVA) are the Expiration Price and the Time Value of Money (TVM). The price and time components are the expected prices and times of the strike or expiration of the options contract. If the options contract is exercised, the holder of the option is obligated to buy or sell the underlying securities under the strike price and the time value of money is equal to the price or value of the underlying securities at the time the options expire.

Therefore, when the options contract is originally purchased, the underlying securities may not have reached their strike price or their time value at the time of purchase. Therefore, this implies that the value of the option does not represent the intrinsic value of the security.

Call Options: On the other hand, put options would represent the lower intrinsic value of the underlying stock. Therefore, if the stock does not reach the strike price at the time of expiration, then no premium will be paid by the holder of the call option. Likewise, for put, the underlying stock would not have reached the expiration point at which the option can be exercised.

A call option is only a contractual right but the holder of the option can exercise his rights as soon as he determines that the underlying stock has gone to the lowest possible level within a reasonable time frame, generally a daily or a weekly period, and no longer qualifies for a premium.

Changes in Intrinsic Volatility: A third factor affecting the value of the option contract is the level of inherent volatility. Volatility is measured using the CVRI, a way of measuring volatility by considering the effect of an asset’s changes in value over time and not just its value immediately after a particular event or change in market conditions. ¬†You can check more from https://www.webull.com/newslist/nasdaq-aapl.


Disclaimer: The analysis information is for reference only and does not constitute an investment recommendation.