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If you’re new to the world of options trading, the concept of an option chain may seem daunting. However, understanding the basics of option chains is essential to becoming a successful options trader. In this article, we’ll break down the basics of option chains so that you can feel confident when trading options.

Table of Contents

## What is an option chain

An option chain is a list of all the available options for a given security. Each option listed in the chain will have its own unique price and expiration date. The options will be listed in order of increasing strike price.

The options listed in an option chain can be either call options or put options. Call options give the holder the right, but not the obligation, to buy the underlying security at a specified price on or before the expiration date. Put options give the holder the right, but not the obligation, to sell the underlying security at a specified price on or before the expiration date.

An option chain can be a useful tool for investors who are looking to trade options. It can help them to find the options that best fit their investment objectives.

## What is the difference between a call option and a put option

A call option is an agreement that gives the holder the right, but not the obligation, to buy a security at a specified price within a certain time period. A put option is an agreement that gives the holder the right, but not the obligation, to sell a security at a specified price within a certain time period.

## What is the difference between a European style option and an American style option

A European style option is an option that can only be exercised on the expiration date. An American style option is an option that can be exercised any time before the expiration date.

## What is the strike price

The strike price is the stock price that must be met for the option to become active. It is also known as the exercise price.

## What is the premium

A premium is a payment made by a policyholder to an insurance company that covers the costs of their insurance policy. The premium is typically paid on a monthly basis and can be used to cover the cost of the policy itself, as well as any additional benefits or riders that may be included in the policy. In most cases, the premium is paid directly to the insurance company, but there are some policies where the premium is paid to a third party, such as an agent or broker.

## What is the expiration date

There is no one definitive answer to this question as the expiration date for food items can vary greatly depending on the type of food, how it was stored, and other factors. However, as a general rule of thumb, most food items will start to lose their freshness and quality after about 3-5 days. After that point, the food may still be safe to eat but it likely won’t taste as good. So, if you’re looking for the freshest possible food, it’s best to consume it within a few days of purchasing it.

## How do you determine the intrinsic value of an option

When it comes to options, the intrinsic value is the amount by which the option is in-the-money. In other words, it is the difference between the strike price and the underlying asset’s current market price.

For example, let’s say you have a call option with a strike price of $50 and the underlying asset is currently trading at $55. This means that your option is $5 in-the-money and therefore has an intrinsic value of $5.

On the other hand, if the underlying asset is trading at $49, then your option is $1 out-of-the-money and has no intrinsic value.

The intrinsic value is important because it represents the true value of an option. It is also what determines whether or not an option is profitable.

To calculate the intrinsic value of an option, you simply need to take the strike price and subtract it from the underlying asset’s current market price. If the resulting number is positive, then that is the intrinsic value of the option. If it is negative, then there is no intrinsic value.

Keep in mind that the intrinsic value is only one part of an option’s overall value. The other part is called time value, which represents the possibility that the underlying asset’s price will move in favor of the option holder before expiration. Time value declines as expiration nears because there is less time for the underlying asset’s price to move.

So, when determining the overall value of an option, you need to take into account both the intrinsic value and the time value.

## How do you determine the time value of an option

There are a number of different factors that contribute to the time value of an option. The first is the amount of time until the option expires. The longer the time until expiration, the greater the chance that the underlying asset will move in the desired direction, and thus the greater the time value. Other factors include the volatility of the underlying asset and the interest rate. Higher volatility and interest rates both increase the time value of an option.

## What is implied volatility

Volatility is a measure of the amount by which an asset’s price fluctuates. It is often used as a measure of risk. The higher the volatility, the greater the risk.

Implied volatility is the market’s expectation of future volatility. It is derived from the prices of options on the asset. The higher the implied volatility, the greater the expected price movements of the asset.

## What is historical volatility

Volatility is a statistical measure of the dispersion of returns for a given security or market index. Volatility can either be measured by using standard deviation or variance between return from that security or market index. Historical volatility is a measure of past volatility and is often used to gauge future volatility.