![]() But in percentage terms, these options move slower the deeper ITM they are. The deeper ITM an option goes, the bigger the delta gets, which means the faster it changes price in dollar terms. Strike selection can be a blend of art and science-or more accurately, a blend of art and math. You can forecast the future price expectations of a call option under different scenarios using the Theo Price (short for “theoretical price”) tool on the thinkorswim platform.You may have heard these lumped together as “the greeks.” If you’re new to options, consider brushing up on options greeks before you make that first trade. It helps to have a basic understanding of how options prices move relative to changes in the underlying stock (delta), the passage of time (theta), and changes in implied volatility (vega).The strike price you choose-whether it’s in the money (ITM), out of the money (OTM), or at the money (ATM)-can make the biggest difference to how your premiums move along with the stock price.But before jumping in, here are a few important principles to remember: Let’s take a look at how the theoretical price calculator works. As prices fluctuate, values can change, including the theoretical value. The theoretical options price is based on the current implied volatility, the strike price of the option, and how much time is left until expiration. So how might you go about setting your targets and expectations? Fortunately, the thinkorswim® platform can help you determine the theoretical price of an option. But if you’re going to place a trade, you’ll want to have some idea of how much your premium might appreciate given certain parameters. So here’s what’s puzzling you: If you buy a call option at a given strike price, how much might it be worth if the underlying stock reaches your price target at a specific point in time?įinding that answer isn’t easy, because options premiums have a lot of moving parts. And options premiums tend to decay, all else being equal, as the clock ticks toward expiration. Sometimes options premiums move incrementally, or bit by bit, while other times, they take off exponentially. You know that options prices (premiums) and their underlying stock prices don’t move in lockstep. But rather than buy the stock outright, you’re thinking about buying a longer-dated call option. You’ve got a price target in mind, and you think that target may be reached within a matter of weeks. ![]() ![]() ![]() Suppose you’re eyeing a stock that appears to be an attractive buy for an intermediate-term trade. Estimate your options premium at a given price and on a given date to help decide if the potential return on a trade is worth the risk.Learn how the theoretical price tool can help project options prices Understand the different factors that make call options prices move ![]()
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