This process, termed leverage, provides you with the ability to take on more chance and gain far more exposure for prospective gains with less income upfront. But leverage really should not be taken frivolously, as that more danger suggests you have a increased opportunity to drop The cash you've invested. In addition, you will have to satisfy selected requirements to margin trade.
The price you purchase a possibility, called the top quality, has two factors: intrinsic value and time worth. Intrinsic benefit will be the distinction between the strike rate and also the share price tag, Should the stock cost is previously mentioned the strike. Time benefit is whatever is still left, and components in how risky the stock is, some more info time to expiration and interest premiums, among other aspects.