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It's important to understand that one SPX option with the same strike price and expiration equals approximately 10 times the value of one SPY option. If you trade a lot of options at one time, it might make more sense to simply trade five SPX options rather than 50 SPY options.
That plan could save significant dollars in commissions. However, it also means trading European options and trading an underlying asset with no dividend, which won't necessarily be suitable for every trader. The Balance does not provide tax, investment, or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results.
Investing involves risk, including the possible loss of principal. Securities and Exchange Commission. Federal Reserve Bank of St. Chicago Board Options Exchange. Table of Contents Expand. Table of Contents. Defining SPX. Defining SPY. SPX vs. SPY: Key Differences. Visit performance for information about the performance numbers displayed above.
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More Articles 1. How to Read Stock Option Tables 2. Step 1 Access an options quotation platform online. Step 2 Enter the ticker symbol for the option you're interested in. Step 3 Access the quote board and find the volume column often abbreviated "vol".
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Finance: options Center. Don't confuse volume with "open interest. When an option position of contracts is closed out, open interest declines by , but volume for the day of the trade increases by Option volume is highest in the weeks and days before expiration, and at strike prices closest to the current price. However, buying or selling an option soon to expire represents a riskier trade, as the "time value" of the option is rapidly deteriorating. Options with months to go before expiration offer less risk and more stable prices.
The option premium is the intrinsic value plus the time value of an option. Here is what each of these terms mean. Intrinsic value measures the benefit that would be gained by the owner of the option if he were to exercise it. In other words, if you own this option and want to buy a share of ABC Corp.
The intrinsic value for a put option works similarly. If a put option for ABC Corp. In this case, if you own a share of ABC Corp. If a call option has a strike price above the current price or a put option has a strike price below the current price, the option has no intrinsic value. This is called an out-of-the-money option.
If the owner of an out-of-the-money option exercises it, he will either pay more when buying the stock or make less when selling it. This is generally not what the owner wants, so options that are way out-of-the-money are considered to have an intrinsic value of zero. My post Options Education Essential Basics has more about this. We might expect the price of an option to be equal to its intrinsic value.
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In most cases, options cost more than their intrinsic value. This difference between the price of the option and its intrinsic value is called its time value.
Because of this time element, this cost is called the time value. An option premium is simply the time value plus the intrinsic value of an option. In other words, the option premium is the option price. Should you sell options with the highest premium? It could be a good idea to sell options with the highest premium.
Again, if an option has a higher price, you can make more money per option sold. But whether you want to sell options with high premiums depends on a few things. First, keep in mind that selling an option brings with it an obligation.
If you sell a call option, you agree to sell the underlying stock at the strike price even if its price later rises. If you sell a put option, you agree to buy the underlying stock at the strike price even if its price later falls. Note that an option may have a high premium because traders are being irrational. Maybe there is no good reason for the premium to be high.
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On the other hand, the premium may be high on a call option because there is a good chance the price will rise during the term of the option. Or it may be high on a put option because there is a good chance the price will fall during the term of the option.