![]() American style options can be exercised anytime between purchase and expiration date.European style options may be exercised only at the expiration date.Options may also be classified according to their exercise time: ![]() Put is an option contract that gives you the right, but not the obligation, to sell the underlying asset at a predetermined price before or at expiration day.Call is an option contract that gives you the right, but not the obligation, to buy the underlying asset at a predetermined price before or at expiration day.There are two major types of options: calls and puts. What is an Option?Ī formal definition of an option states that it is a type of contract between two parties that provides one party the right, but not the obligation, to buy or sell the underlying asset at a predetermined price before or at expiration day. Therefore, option pricing models are powerful tools for finance professionals involved in options trading. Knowing the estimate of the fair value of an option, finance professionals could adjust their trading strategies and portfolios. In other words, option pricing models provide us a fair value of an option. The theoretical value of an option is an estimate of what an option should be worth using all known inputs. Option Pricing Models are mathematical models that use certain variables to calculate the theoretical value of an option. Updated OctoWhat are Option Pricing Models?
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