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QQQQ (Nasdaq-100 Index Tracking Stock) is the most active ETF (Exchange Traded Fund)

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Options Definition: Fair Value


An option's fair value is simply its value at the current moment. The fair value will therefore fluctuate with market conditions.

It is important to know the parameters that affect the price of an option:

  • Valuation Date: This is the date for which you are determining an option's fair value (i.e., the current date.)
     
  • Expiration Date: The date on which an option expires. After this date, it cannot be exercised and is therefore worthless..
     
  • Price: The price of an underlying security – provides the basis for pricing the option at the time of its valuation.
     
  • Strike Price: This is the price at which the option may be exercised.
     
  • Volatility: The volatility of an asset provides a measure of the random variability or dispersion of price data per unit of time, usually quoted as the annual standard deviation of an asset's price.
     
  • Type of option: Call or put.
     
  • Option Style: There are American style and European style options. American style options can be exercised at any time up to the expiration date. European style options may be exercised only on the expiration date itself.

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