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British Pound Option Price
The futures British
pound price and the British pound 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 British pound is trading at $1.4093 a $1.3993 call option is $.01 in the money
so the intrinsic value of the option is $625.00.
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 looses 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.
British pound option prices do not
move in tandem with futures prices. A $.01 move in your favor in the British pound futures markets does not necessarily equal
to a $.01 increase in the British pound 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 British pound call option has a delta of .5 and the price of the British pound
futures market increases by $.01 the value of the option will increase by $.005 or $312.5.
If
you are a speculator with a limited amount of risk capital then British pound options may be best way for you to invest
in the British pound market.
Click here to view the current price
of British pound options.
Click here to contact a commodities broker with experience the British pound market.
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