Definition: Option Pricing | Tackle Trading: The #1 rated trading education platform

Option Pricing

Option pricing refers to the amount of the option premium per share at which an option contract is traded in the live market.

Premium is the price paid or received when buying/selling options. This price can be split into two components.

Intrinsic value = Equity for In the Money Options

Extrinsic value = Time, Volatility, Risk-Free Interest Rates

The option price is calculated using the option pricing model known as the Black Scholes Option Pricing Model.

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