The "daily Call" From Option Alpha: Options Trading | Stock Options | Stock Trading | Trading Online

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to answer the question, “How is premium of an option calculated?” The premium of an option contract is the price at which the option contract trades for and this is the price at which people will either buy or sell the contract to one another in the open market. Now, option contract’s premiums are basically comprised of two underlying pricing components and I’ll just talk about these two because we dive deeper into these inside of our free training and tracks on Option Alpha, so if you want to deep dive on this, you can definitely check those out. But the two components of an options price are intrinsic value and extrinsic value and these are basically the easiest way that you can understand how the option price is derived or how it’s calculated. The intrinsic value basically answers the question, “How much value does the contract have if it were to be exercised immediately?” For a call option contra