Tackle Today: The Options Heuristics Series – Absolute Truth n.6
October 25, 2018
≈ Keep it in your pocket. ≈
Last Tuesday we published the Absolute Truth n.5: The time between now and the expiration date influences the price of the option due to the amount of uncertainty that is built into it (Time = Uncertainty). This train of thoughts leads us to the Absolute Truth n.6.
Absolute Truth n.6: The price of an option contract is divided into Extrinsic Value and Intrinsic Value.
(Note: Extrinsic Value is also called Time Value)
Many beginners have a hard time in grasping the concept due to how things are explained. Usually, the first thing they encounter on the web when searching for Time and Intrinsic Value is either a chart or some sort of calculation. If they are not a Maths person, the first reaction might be “Man, I’ll never learn this thing.” It is really simple, though.
Intrinsic Value is the *real value* of the option contract, whereas Extrinsic (Time) Value would be like a “fake value” so to speak (you know what a fugazi is?), a value that is determined by the amount of time (thus, uncertainty) from now until the expiration date. Put in a simpler way, Intrinsic Value is more down-to-earth; Extrinsic Value is pure fugazi.
You can download and print the flashcard HERE.
Chart of the Day
Absolute Truth n.6
Video of the Day
How to set up Think or Swim Charts
Coach Tim Justice answers a student’s question on how to set up charts on the Think or Swim Platform.
Today’s Lineup
ROOKIE CORNER
Lets go hunting Part VIII
Last week we talked about position sizing and understanding, fully, the trades we enter. This is paramount to trading success and anyone who has put real money into the markets and has felt the sting of a position or market reversal can attest to just how important these two principles are. There is another issue in trading that tends to trip up the newer traders especially anyone who has only traders for the last few years.
Coaches Lounge 11am 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 8:30PM EST
Held every Thursday before Friday’s option contract expirations, this show helps you perfect your favorite cashflow strategies.
Halftime Report 12:30pm 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 Matt and Tim can deliver.
Market Recap 4:30pm EST
The Market Recap is designed to give you a quick overview of the day that was. While brief, this report is designed to cover all of the major events that drove the markets that day and help you plan for the trading day ahead.
