Option Strike Analysis

As an example, take a look at CME today.  CME closed at 300.04, up +11.98 on the day.

When planning your options play it’s good to look at premium prices over time to get a feel for how the greeks are built into the extrinsic value.  Put another way, by using past data you can chart the price movement of an option contract to see where it actually traded in the past.  Doing this you can put a dollar value to the factors that go into pricing an option and because it’s past data it is reliable.

Here is a real world scenario emphasizing the difference between buying a strike ATM (at the money) vs OTM (out of the money).

DEC 10 CME 330 CALL contracts:

DEC 10 CME 300 CALL contracts:

This is an illustration that should be ingrained into every option trader’s head.

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One Response to Option Strike Analysis

  1. $eabass says:

    nice post man!

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