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DJIA Index Option Price

The futures Dow Jones Industrial Average index price, and the DJIA option price is not the same thing. Option price valuation is not as straightforward as futures valuation. Option premium is comprised of intrinsic value and extrinsic value. 

An option has intrinsic value if the market is trading above the strike price of a call option, or below the strike price of a put option. If an option contract has intrinsic value it is called "in the money." If an option contract does not have intrinsic value it is called "out of the money."

For example:

If the DJIA index is trading at 11,740, a 11,600 call option is 140 index points in the money so the intrinsic value of the option is $1,400.

The extrinsic value of the option is its "time value." Extrinsic value takes into account the possibility that an option may go in the money by expiration. The more time that an option has, the more extrinsic value it has. As an option approaches its expiration date, it loses value. This is called time decay. At expiration, an option has no extrinsic value so if the option is out of the money it expires worthless.

Dow Jones Industrial Average index option prices do not move in tandem with DJIA futures prices. A 1 point move in your favor in the DJIA futures markets does not necessarily equal to a 1 point increase in the DJIA option value. The amount that an option value will increase based upon an increase in its futures price is called its delta. Call option deltas are measures from 0 to 1. As an option goes from "out of the money" to "in the money" its delta increases.

For example:

If a DJIA index call option has a delta of .5 and the price of the DJIA futures market increases by 1 the value of the option will increase by .5 or $5.

If you are a speculator with a limited amount of risk capital then DJIA options may be the best way for you to invest in the DJIA market.

Click here to view the current price of DJIA index options.

Click here to contact a commodities broker with experience in the Dow Jones Index market.