How to Price Fair Value How to Price Fair Value in Optionsin Options

Ever been curious about how to trade Ever been curious about how to trade options? If yes, start learning right now! options? If yes, start learning right now!

Among the plenty of things that an options Among the plenty of things that an options trader needs to learn, today we will have a trader needs to learn, today we will have a

small talk about small talk about

Like the prices of most things, the Like the prices of most things, the prices of options can be sensitive to prices of options can be sensitive to overall market demand. However, overall market demand. However,

there are intelligent techniques you there are intelligent techniques you can employ when trying to can employ when trying to

determine fair option value. Why determine fair option value. Why don’t we learn?don’t we learn?

There are several factors which can There are several factors which can influence on options pricing. They may influence on options pricing. They may include the volume and scope of prices include the volume and scope of prices movements on the underlying movements on the underlying futures marketfutures market, time until option expiration, , time until option expiration, and the relation of the options strike price and the relation of the options strike price to the price of the underlying commodity to the price of the underlying commodity futures market. futures market.

With the current scaling back of With the current scaling back of open outcry trading, it can be more open outcry trading, it can be more crucial than ever to have a concise crucial than ever to have a concise and educated method rather than and educated method rather than

relying on wide bid and offer quotes relying on wide bid and offer quotes from the options pit to select a price from the options pit to select a price

for your option. for your option.

You may wonder what are bid and offer. Simply a You may wonder what are bid and offer. Simply a wide bid and offer (known as bid and ask) wide bid and offer (known as bid and ask) means the difference between the price at which means the difference between the price at which someone is willing to buy an option versus and someone is willing to buy an option versus and the price at which someone is willing to sell an the price at which someone is willing to sell an option is particularly pronounced with a wide option is particularly pronounced with a wide span of option price between the two. span of option price between the two.

That is without being sure yourself what a good bid That is without being sure yourself what a good bid or offer is for the option which you want to trade, or offer is for the option which you want to trade, you should have to place the order at one side you should have to place the order at one side or the other. or the other.

What should traders in What should traders in options tradingoptions trading do do when they face with such the situation? when they face with such the situation? Some usually place their option order Some usually place their option order with a limit price somewhere in the with a limit price somewhere in the middle and hope that it gets filled.middle and hope that it gets filled.

To sum up, being able to observe historic To sum up, being able to observe historic prices and current market action is prices and current market action is important. It will help you learn option important. It will help you learn option trading and find a fair pricing level trading and find a fair pricing level exclusive of any additional computer exclusive of any additional computer programs or complicated calculating programs or complicated calculating software. Once you are joining in the software. Once you are joining in the futures options market, do not miss any futures options market, do not miss any knowledge that can guide your way to knowledge that can guide your way to success.success.

Futures tradingFutures trading and options trading involve a and options trading involve a substantial risk of loss and is not suitable substantial risk of loss and is not suitable for all investors. Past performance is not for all investors. Past performance is not necessarily indicative of future results. necessarily indicative of future results.