Options call examples,option trading tutorial example,best online stock brokers for beginners,stock trading brokers uk - Easy Way

19.12.2014 admin
So a big question that comes to the mind of an options trader who has a Long Call Option Position is that Whether to Square off or close the Trade on the long call position if in profit, OR to hold it till expiry.
As explained in the article Options Time Decay: Time Decay in Options Explained with Examples, options have time decay value. So when deciding upon whether to trade or to hold the option, it is always adivsable to trade the option.
This current option price of $15 contains 2 parts, $11 from intrinsic value (Current price of underlying $36 - Strike Price $25).

Moreover, by holding the option, you are also taking a risk of uncertainity till option expires. Say you have a Long Call Option Position with strike price of $25 which you bought when there were 2 months expiry at price of $2. It is possible that whatever option is in profit today, might be at a loss in the next one month.
Although some other valuation methods are also used, like Binary Tree Model and so on, but all of them give almost similar values for pricing options.

A month passes by and due to price movement of the underlying which might have now come to $36, the option price has shot upto $15.
So even if at the time of expiry, the intrinsic value of Option may remain at $11, the time decay value will become zero.

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