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What is option Greek?

In the world of options, letters of the Greek alphabet (known as "option Greeks," or simply "the Greeks") are used to describe the changes in option premiums that result from the interplay among the three main factors that affect option pricing: stock price relative to strike price, time until expiration, and volatility.

How to calculate option price?

The formula for option price in each node (same for calls and puts) is: E = (O u ⋅ p + O d ⋅ (1 − p)) ⋅ e − r Δ t Using this formula, we can calculate option prices in all nodes going right to left from expiration to the first node of the tree – which is the current option price, the ultimate output.

What is the value of a call or put option?

What Is the Value of a Call or Put Option? Two components of an option's price. Image source: Getty Images. ... Examples. First, let's say that Microsoft is trading for $50 per share, and you buy a call option that allows you to purchase 100 shares of the stock for $60 ... Calculating the value of your options. ...

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