Extrinsic Value Explained: Options Trading for Beginners

Subscribe to our Second Channel: @tastylivetrending

tastylive is a real financial network, producing hours of live programming every day. Follow along as our experts navigate the markets, provide actionable trading insights, and teach you how to trade. With over 120 original segments, and over 25 personalities, we’ll help you take your trading to the next level, whether you are new to trading or a seasoned veteran.

Past performance is not indicative of future results. Performance is not presented net of all commissions, fees, and expenses. Multi-leg option strategies incur higher transaction costs than single leg trades as they involve multiple commission charges. Examples provided are for illustrative, informational, and educational purposes only and are not intended to be reflective of results you can expect to achieve. Supporting documentation for any claims (including claims made on behalf of options programs), comparisons, statistics, or other technical data, if applicable, will be supplied upon request.

tastylive, through its content, financial programming or otherwise, does not provide investment or financial advice or make investment recommendations. tastylive is not a licensed financial adviser, registered investment adviser, or a registered broker-dealer. 

tastytrade, Inc. (“tastytrade”) has entered into a Marketing Agreement with tastylive whereby tastytrade pays compensation to tastylive to recommend tastytrade’s brokerage services. The existence of this Marketing Agreement should not be deemed as an endorsement or recommendation of tastylive by tastytrade. tastytrade and tastylive are separate, but affiliated, entities with their own products and services. tastylive is the direct parent company of tastytrade.

[DojiDude]

Love the video straight to the point while being clear also love the date why dont more channels do this

[Aman]

A spike in in Ivol will negate theta decay - the key takeaway for me

[RBTRYK]

Best new addition to TT. Excellent work, Mike.

[lee__]

Mike is the man ... muito bom amigo! 👍

[pnggreen]

7:45 When you sold the option for a premium of $5, how do you close the sold option when the premium is $4? By buying an option? So if you buy and sell the same option nothing happens?

[edg]

Nice going Mike. Where did you get this format? Great explanation. This guy is sharp.

[alastairgee]

An awesome vid on explaining the option values and how change...especially during volatility times, , , thank you

[nononnomonohjghdgdshrsrhsjgd]

Hi, the greeks are derivated from Black-Scholes Modell for simple european call or put option. I have two questions. 1. The BS formula tries to predict the extrinsic value, right? 2. How do you use the greeks in the practice to better predict the extrinsic value? I mean, one can make sensitivity anlysis, on how the option price would be, if price of underlying, or expiration of option change, however, the szenarios of changes in underlying or expiration are still inputted in the BS formula. How or do the greeks help to optimize the predicted value of the option, by introducing new terms in the BS formula? I think, they don't, but I am not sure. I thought, they are used only for sensitivity anlaysis. Is it so? Thank you for the answers!

[nabbugolu]

I think Theta also increases with increase in volatility which you didn't mentioned in the video...

[grant]

Excellent presentation. Well done and thank you. I like your hairstyle as well bro.

[jamesp]

When you look at real time option price (call or put) ( extrinsic only), how can one tell what is the time value portion and what the implied vol portion is for that price.

[TrHard]

What if you sell or buy options as a day trading strategy does the decay even have a major role

[jonathanmgoodman]

Is there any advantage of owning stocks (assuming dividend payouts are negligible) over buying deep in-the-money call options with little to no extrinsic value. That would reduce my cost basis compared to owning the stock and allow me to further diversify my portfolio.

[vaish]

For ATM options, will extrinsic value be more than the option premium, to result in a time decay of the extrinsic value?

[davethemonkey]

Excellent explanation. A question : would it then ultimate matter that there is still value because of high volatility as OTM options is going to expire worthless anyway? why would I want to buy back for one dollar if it was close to expiration anyway? Appreciate your thoughts.

[peteallennh]

Fantastic presentation. Where in TastyWorks can I see a histogram of historic volatility for my underlying?

[chhayasaini]

Thanks for the explanation! I have one doubt if the option is in the money, will the time value still decay since now the chances of the option to exercise in the money are high.
Could you relate the time value in the context of ATM, OTM and ITM?

[lindamacdonald]

if extrinsic value of an option was 1.00 on the day it was sold and IV kept the intrinsic value of that option at 1.00 up to two days before expiration, does that mean the decay of that option premium would occur entirely during those two days?

[PardeepKumar-tcws]

Nice video, but i have question- In the last you said earning announcement will increase the volatility and premium price will reduce. But how it can be, increase in volatility will increase the premium price??

[ChaceBonanno]

I see it more as 2 sides of the same coin. What I mean is that extrinsic value is volatility value that's decaying over time.