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Options made simple: A beginner's guide to trading options for success by Jacqueline Clarke

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Chapter 4: Option pricing

The market forces affecting the value of stocks will in turn affect the market value of the options attached to those stocks. The option itself has no underlying value — its value is derived from the value of the stock and your ability to buy or sell that stock.

In this chapter we will explore the two components of an option price. These components are intrinsic value and time value. We will also look at the factors that affect the price of an option and how these factors vary from the factors that affect the price of a stock.

Stock pricing versus option pricing

Stocks issued by a company are limited in number and as a result their price is influenced by the forces of demand and supply. Like any limited commodity, ...

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