Monday, January 2, 2012

reflex about option premium at different strikes

Example -- Among spx calls, at lower strikes, premium should be ....? Higher. We need to develop reflex.

There's no greek or graph of premiums against strikes. This relation is too simple. But many option newbies lack quick confidence about this "simple" thing. When you reason about option spread strategies, you need this quick confidence.

Think of calls as shopping coupons "get a beer at $1 with this coupon". The lower the "strike", the more Valuable is the coupon.

Puts are actually more intuitive. Higher the strike, higher the premium, since buyer can "cash in" more.

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