Options are divided into Call Option and Put Option by direction. In addition to direction, the constituent elements of options are as follows.
1. Strike Price
The transaction price of the underlying asset applicable when the buyer of the option exercises the option.
2. Expiry date
The expiration date of the option corresponds to the termination date of the contract. The contract is time-sensitive, and the contract expires after this date. In the U.S. stock market, the expiration date of the periodic rights of stocks is every Friday, and the expiration date of monthly options is the third Friday of each month; index options may be available on both midweek and Friday.
American options mean that holders can exercise their rights at any time before the expiry date, while holders of European-style options can choose whether to exercise their rights only on the expiry date.
3. Contract multiplier
Refers to the value multiplier of the underlying asset corresponding to each option contract. For example, the multiplier is 100 and the exercise price is 20, which means that the value of this contract is 100*20 = 2000.
4. Contract size
Refers to the actual quantity of the underlying object corresponding to each option contract, usually 100 (in case of the behavior of the underlying company, the contract size may be adjusted to a number other than 100). For example, if the current option price is 0.5, the premium of an option is usually 0.5*100 = 50.
1. Implied Volatility (IV)
Refers to the volatility of the underlying asset obtained by bringing the option price into the option pricing model (usually using the BS pricing model).
It represents the rate of change of the option price to the price of the underlying asset, that is, for every unit that the underlying asset changes, the change in the option price is the Delta.
It represents the rate of change of Delta to the price of the underlying asset, that is, for every unit of change in the price of the underlying asset, the change in the Delta value is Gamma. Gamma measures the sensitivity of the Delta value to changes in the price of the underlying asset.
It represents the change of the option price caused by the time decay from the expiration date of the option, that is, the change value of the option price is Theta for each day of decrease from the expiration date.
It represents the impact of 1% change in the price volatility of the underlying asset on the price of the option.6. RhoIt represents the impact of the unit change of the risk-free interest rate on the option price. Generally speaking, it refers to the degree of impact on the option price when the risk-free interest rate changes by 1%.