How Stock Options Are Priced

Discussion continues on our message board about how options are priced. I love seeing these discussions because it means that members of TheOptionClub.com are developing their understanding of what options are and how they work.

There is always a bit of mental energy needed to grasp these concepts. You have to struggle with the concepts a bit before they sink in. Once they do, you will find that you have a much better sense for how an option will respond to changes in the market.

This is critical. As option traders, we look at the market and question what is likely to occur in the future. Are prices likely to rise? Will volatility fall? As we answer these questions, we begin the process of selecting an option strategy to take advantage of those changes or hedge against them.

I put together a video that introduces these concepts. It's only about 20 minutes long, so it is not a complete education but it will introduce the subject.

How Stock Options Work

Use the above link to access the video. I hope you find it helpful as an introduction. After you have viewed it, be sure to visit our Yahoo! Group where you can review the ongoing discussion and post your own questions and observations.

Trade well!

Christopher Smith
TheOptionClub.com