2.Understanding Options Pricing: Intrinsic and Extrinsic Value

Options pricing can be a complex topic, but understanding the concepts of intrinsic and extrinsic value is essential for successful options trading.

Intrinsic value is the value that an option would have if it were immediately exercised. It is calculated by taking the difference between the current market price of the underlying asset and the option's strike price. For example, if a call option has a strike price of $50 and the current market price of the underlying asset is $60, then the option has an intrinsic value of $10.