Definition, Examples & Resources:Extrinsic Value'
Extrinsic Value can be an important criterion to add to your Brutus Options Ranker Strategy.
If you are building a net-short options trading strategy you may look to maximize the amount of extrinsic value in the contract in order to maximize the amount of total Extrinsic Value available to collect if the trade expires out of the money. You will want to add Extrinsic Value to your strategy with an objective to maximize the value as an options seller.
If the trader is trading a net-long options strategy, then Extrinsic Value is the amount the buyer needs to pay (or subject to lose) if the underlying (stock) remains at the same price. You will want to add Extrinsic Value to your strategy with an objective to minimize the value as an options buyer.
Extrinsic Value can be found on the Strategy Tree Builder page within the Brutus Options Ranker under the Criteria List and the General Panel:
Breaking Down Extrinsic Value
Let's break down Intrinsic and Extrinsic Value with an example. Apple Inc. ($AAPL) at the time of writing is $139.91/share. Let's take a look at options on AAPL that are expiring in 243 days.Strike Price $4.91 (Intrinsic Value) = $139.91 (stock price) - 135 (strike price) Now, since the option's mid price is $12.50 we have everything we need to calculate the Extrinsic Value: Extrinsic Value = Option Price - Intrinsic Value $7.59 (Extrinsic Value)= $12.50 (option price) - $4.91
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