Traders,

Every option, call or put, comes with a price tag. It’s known as an option’s premium. Understanding what drives the premium is essential to making educated decisions as a trader. Here’s the formula to remember:

Premium = Intrinsic Value + Extrinsic Value

In other words, P = IV + EV.

Intrinsic value is how much the option is in-the-money (ITM). The deeper ITM the option, the higher its premium. Out-of-the-money options have no intrinsic value.

Extrinsic value is how much you pay for time and volatility. The more time to expiration and the higher the expected volatility, the higher the premium.

Most options chains allow you to plot intrinsic & extrinsic values as columns. Do that for a few weeks as you build trades, and the relationship between Premium, IV, and EV will become intuitive.

In Wednesday’s Jedi Options segment, Coach Tyler explained how an options premium works. You can catch the replay here.

---

Video Of The Day: Trade Masters – Hot Trading Picks From Tackle Trading

Every Wednesday at 7 PM EST join us on the Trade Masters Show where two Coaches go head-to-head to see who can find the best #tradingsetup.

---

Chart of the Day: Ethereum

Bitcoin isn’t the only cryptocurrency taking flight. Ethereum is jumping 5% this morning to crack the psychologically significant $2,000 level.

---

Today’s line up

Traders Lounge 11 AM EST

Join the coaches in this live lounge, ask questions, discuss ideas or just sit back and listen to veteran traders discuss market conditions.

Cashflow Club 8:30 PM EST

Held every Thursday before Friday’s option contract expirations, this show helps you perfect your favorite cashflow strategies.

Halftime Report 12:30 PM EST

The Halftime Report starts at 12:30 EST and covers what news is driving the market, chart analysis from the movers and shakers of the day, and fun in a way that only the coaches at Tackle Trading can deliver.

---

Financial freedom is a journey

Sign up now and gain unfettered access to all of the quality content and powerful Scouting Reports that our Pro Members enjoy for 15-days absolutely free with no strings attached and let us show you what your trading has been missing.

---

Legal Disclaimer

Tackle Trading LLC (“Tackle Trading”) is providing this website and any related materials, including newsletters, blog posts, videos, social media postings and any other communications (collectively, the “Materials”) on an “as-is” basis. This means that although Tackle Trading strives to make the information accurate, thorough and current, neither Tackle Trading nor the author(s) of the Materials or the moderators guarantee or warrant the Materials or accept liability for any damage, loss or expense arising from the use of the Materials, whether based in tort, contract, or otherwise. Tackle Trading is providing the Materials for educational purposes only. We are not providing legal, accounting, or financial advisory services, and this is not a solicitation or recommendation to buy or sell any stocks, options, or other financial instruments or investments. Examples that address specific assets, stocks, options or other financial instrument transactions are for illustrative purposes only and are not intended to represent specific trades or transactions that we have conducted. In fact, for the purpose of illustration, we may use examples that are different from or contrary to transactions we have conducted or positions we hold. Furthermore, this website and any information or training herein are not intended as a solicitation for any future relationship, business or otherwise, between the users and the moderators. No express or implied warranties are being made with respect to these services and products. By using the Materials, each user agrees to indemnify and hold Tackle Trading harmless from all losses, expenses and costs, including reasonable attorneys’ fees, arising out of or resulting from user’s use of the Materials. In no event shall Tackle Trading or the author(s) or moderators be liable for any direct, special, consequential or incidental damages arising out of or related to the Materials. If this limitation on damages is not enforceable in some states, the total amount of Tackle Trading’s liability to the user or others shall not exceed the amount paid by the user for such Materials.

All investing and trading in the securities market involves a high degree of risk. Any decisions to place trades in the financial markets, including trading in stocks, options or other financial instruments, is a personal decision that should only be made after conducting thorough independent research, including a personal risk and financial assessment, and prior consultation with the user’s investment, legal, tax and accounting advisers, to determine whether such trading or investment is appropriate for that user.