Option Market Data Fields Introductions
Contract elements of Options
Options are divided into Call Option and Put Option by direction. In addition to direction, the constituent elements of options are as follows.
1. Strike Price
The transaction price of the underlying asset applicable when the buyer of the option exercises the option.
2. Expiry date
The expiration date of the option corresponds to the termination date of the contract. The contract is time-sensitive, and the contract expires after this date. In the U.S. stock market, the expiration date of the periodic rights of stocks is every Friday, and the expiration date of monthly options is the third Friday of each month; index options may be available on both midweek and Friday.
American options mean that holders can exercise their rights at any time before the expiry date, while holders of European-style options can choose whether to exercise their rights only on the expiry date.
3. Contract multiplier
Refers to the value multiplier of the underlying asset corresponding to each option contract. For example, the multiplier is 100 and the exercise price is 20, which means that the value of this contract is 100*20 = 2000.
4. Contract size
Refers to the actual quantity of the underlying asset corresponding to each option contract, usually 100 (in case of the corporate action, the contract size may be adjusted to a number other than 100). For example, if the current option price is 0.5, the premium of an option is usually 0.5*100 = 50.
5. Intrinsic Value
Intrinsic Value refers to the difference between the option’s strike price and the current market price of the underlying asset. It represents the potential profit if the option were exercised immediately, thus reflecting the option's true economic value.
Formula:
S: Current price of the underlying asset
K: Option’s strike price
- For a Call Option, the intrinsic value is: max(0,S−K)
- For a Put Option, the intrinsic value is: max(0,K−S)
6. Time Value
Time Value is the portion of an option’s total value (or premium) that exceeds its intrinsic value. It reflects the uncertainty and the potential profit associated with holding the option until expiration. Time value decreases as the expiration date approaches, typically showing a negatively accelerating decay pattern, and becomes zero upon expiration.
Formula:
Time Value = Option’s market price-Intrinsic value
7. Eff. Gearing
Eff. Gearing measures the sensitivity and potential return of an option contract relative to changes in the price of the underlying asset. It demonstrates the leveraged effect of holding an option versus the direct asset, serving as an essential indicator for traders assessing options investment risks and rewards.
Formula:
Eff. Gearing = Delta×Underlying Asset Price/Option Price
Option indicators and Greek letters
1. Implied Volatility (IV)
Refers to the volatility of the underlying asset obtained by bringing the option price into the option pricing model (usually using the BS pricing model).
2. Delta
It represents the rate of change of the option price to the price of the underlying asset, that is, for every unit that the underlying asset changes, the change in the option price is the Delta.
3. Gamma
It represents the rate of change of Delta to the price of the underlying asset, that is, for every unit of change in the price of the underlying asset, the change in the Delta value is Gamma. Gamma measures the sensitivity of the Delta value to changes in the price of the underlying asset.
4. Theta
It represents the change of the option price caused by the time decay from the expiration date of the option, that is, the change value of the option price is Theta for each day of decrease from the expiration date.
5. Vega
It represents the impact of 1% change in the price volatility of the underlying asset on the price of the option.6. RhoIt represents the impact of the unit change of the risk-free interest rate on the option price. Generally speaking, it refers to the degree of impact on the option price when the risk-free interest rate changes by 1%.