Finance

How to Understand Options in Yahoo Finance?

Yahoo Finance
Written by Aswin

How to Understand Options in Yahoo Finance?

Understanding option prices can be difficult, and even experienced option traders can end up confused by them. This is due to the fact that there are a variety of different options with many different possible outcomes.

To make matters worse, the prices of the various combinations of these different options can change over time. That makes it even more important to understand how option prices change based on the underlying stock, what time of day it is, and many other factors. In this article, we will be focusing on how to understand option prices in Yahoo Finance.

What is an option?

An option is a contract between two parties. One party, the buyer, pays a fee in order to purchase the right to buy or sell something at a specific price within a certain time frame. The other party, the seller, agrees to provide that right.

Options are typically used as protection against adverse price movements of an underlying asset (such as stocks).

How to Understand Option Prices in Yahoo Finance

In order to understand option prices in Yahoo Finance, you’ll have to first login. Once you’re on the homepage, change your focus to the site navigation and select “Finance.”

Once on the finance page, click “Stock Quotes” from the middle of the screen. This will open a new window that displays quotes for all of the stocks that Yahoo Finance tracks.

Scroll down until you find what you’re looking for and then click it. A new window should appear with a variety of information about this stock, including its current price and how much each share is worth. Alongside these numbers should be an option called “Options.” Click this option and then use it to figure out what each different item means.

Understanding the basics of option pricing

Understanding the basics of option pricing is the first step to understanding Yahoo Finance and what options are worth.

There are four basic components that have an effect on the price of an option: time, volatility, intrinsic value, and extrinsic value.

– Time: For example, a January call option has more time until expiration than a December call option.

– Volatility: Options with a higher volatility will generally have a higher price.

– Intrinsic Value: Intrinsic value is another important factor in determining the prices of options. A call option has positive intrinsic value when its strike price is below the current market value of the underlying stock. A put option will have positive intrinsic value when its strike price is above the current market value of the underlying stock.

– Extrinsic Value: Extrinsic values (or time worth) can also be used to determine which options are desirable and how much they cost. If you purchase an option, you will want one with a long extrinsic value–this means it has more time before it expires.

Understanding in-the-money options

An option is considered to be in-the-money when the strike price is less than the current underlying stock price.

When an option is in-the-money, it has intrinsic value and will gain more value as the underlying stock moves closer to the strike price. For example, if you purchase a call option that has a strike price of $20 and the stock currently trades at $27, then your call option would be considered in-the-money because your underlying stock is above the strike price.

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Understanding out-of-the-money options

If you buy an out-of-the-money call option, it will cost you less than an in-the-money option. For example, if a stock is trading at $100 and you buy an out of the money call option on this stock for $2, then that out of the money call option would be considered to have a strike price of $98. That means that it would only be profitable if the stock increased to approximately or above $98.

The opposite is true when you’re considering buying an out of the money put option. If the stock is trading at $100 and you buy an out of the money put option for $1, then that put option would be considered to have a strike price of 99. This means that it would only be profitable if the stock decreased to approximately or below $99.

Confusing double options with triple and more-the-more options

A double option is a call option with an equal number of puts. For example, if you were to buy a “double” call, it would make no difference which option you choose as the sum of the two options would be worth the same amount. A triple-option is a combination of three different options: one call and two puts. The fourth option is called “n-times,” where n equals 3 or more.

Summary

Yahoo Finance is an online financial service that allows you to track stocks, bonds, and other investments.

The following article teaches you how to understand the different options in Yahoo Finance.

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Aswin

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