Understanding Options And What Makes Option Prices Move

What determines the price of an option?
Before we get into option trading strategies lets look at the main reasons prices move. The combination of price of the underlying asset and the amount of time remaining for the option to trade. The only other factor to consider is which option. Should it be in the money or out of the money?

When option trading.... it is important to realize that the option price is determined primarily by the price movement or lack of movement of the underlying asset.

If a stock or commodity is making a rapid price advance the price of a call option will be moving in the same direction and it too will be moving rapidly. The options closest to the money will move the most. The options farthest away will move the least.

However, percentage wise, the 'in the money option' (ITM) will be moving much slower than the 'out of the money' (OTM) option. In a rapid price move the options farthest away can move 50 to 100 percent in a day.

In contrast to the above, you may have the underlying price of the asset moving sideways. This will cause the out of the money options to gradually erode in value, as each day brings the option closer to expiration.

Time remaining in the life of the option is the second most important determinant to the price of an option. In other words the number of days remaining before the options expiration date.

With the above facts you can exploit under valued and over valued options. And with the proper tools you will be armed and ready to make profits. To buy low cost, low risk commodity options click here or on understanding options

Understanding Options by looking at charts that show overbought and oversold....The idea place to understand options and the way price moves along with the underlying asset. Interested in selling puts and calls.... my partner James has a program that gives you the ideal time to sell calls and puts on stocks and commodities. You can try it out for 10 cents a day. If you like what you see, send me an email and I will give you the plan I worked out to capture option premiums ....it's free.

Option Magic   Commodity Codes   Option Glossary   Selling Calls  Buying Calls 

There is risk, in trading options .... particuarly if your not understanding options. Futures, Options, Stocks and Commodity trading have large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in Stocks, Futures, Options and Commodity markets. Don't trade with money that you can't afford to lose. This is neither a solicitation nor an offer to Buy/Sell Futures, Options, Stocks or Commodities.risk disclosure Understanding options may help take the some of the risk out of trading options.