How to determine the price of an option, Buying & Selling Stock


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They give you the right, but not the obligation, to buy or sell stock for a predetermined price, called the strike price. Each stock has call options and put options available at various strike prices.

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A call option gives you the right to buy stock, while a put gives you the right to sell. For a particular strike price, you can calculate the cost to buy a call or put option and the cost to use it. Step 1 Visit any financial website that provides options quotes. Step 2 Click one of the months on the page to see the options expiring that month.

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You can trade or use an option up until the third Friday of the expiration month. For example, if you want to review options expiring in January of next year, click that month.

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Each row contains information on the call and put options for the designated strike price. Strike prices range from less than the current stock price to greater than the stock price.

Time to expiration, volatility, and interest rates form extrinsic value.

There are two different ask columns. Use the one to the left of the strike column for call options.

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Use the one to the right for puts. Step 5 Multiply the ask price by to calculate the total price to buy one option contract.

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Each contract represents shares of stock. More Articles.

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