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Euro Option Price
The
futures euro price, and the euro 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 euro is trading at $1.28100, a $1.29100 call option
is $.01 in the money so the intrinsic value of the option is $1,250.
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.
Euro option prices do not move in tandem with euro futures prices. A $.01 move in your favor in the euro
futures markets does not necessarily equal to a $.01 increase in the euro 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 euro call option has a delta of .5 and the price of the euro futures market increases by $.01 the
value of the option will increase by $.005 or $625.00.
If you are a speculator with a limited amount of risk
capital then euro options may be the best way for you to invest in the euro market.
Click here to view the current price of euro
options.
Click here to contact a commodities broker with experience the euro market.
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