CHET Advisor 529 Portfolio 2042 Class A · NASDAQ:FCJAX
CHET Advisor 529 Portfolio 2042 Class A — The Options Industry Council — Investor Presentation (October 2023)
19 slides from CHET Advisor 529 Portfolio 2042 Class A's investor presentation, October 2023
Slide 1: Critical Options Pricing Factors
Critical Options Pricing Factors Edward J Modla Director Retail Education, The Options Industry Council www.OptionsEducation.org
Slide 2: Disclaimer
Disclaimer Options involve risks and are not suitable for everyone. Individuals should not enter into options transactions until they have read and understood the risk disclosure document, Characteristics and Risks of Standardized Options, available by visiting OptionsEducation.org. To obtain a copy
Slide 3: Presentation Outline
Presentation Outline • Options Pricing Basics • Time Decay/Theta • Implied Volatility • Buying Calls/Puts • Selling Calls/Puts 3
Slide 4: Options in the Marketplace
Options in the Marketplace Who makes options prices? • All market participants (buyers & sellers) • Individual & institutional investors • Professional market-makers • Best bid/ask is consensus of all bids and offers What is an option ultimately worth? • What the market is willing to pay • Pricing m
Slide 5: Option Premium
Option Premium • An option buyer pays premium • An option seller receives premium • Option buyers/sellers can often trade back the contract to close • Premium quoted on a per share basis • total paid/received = quoted price x 100 shares • example: $3.00 quoted x 100 = $300.00 total • excluding commi
Slide 6: Intrinsic Value vs. Time Value
Intrinsic Value vs. Time Value Option Premium: Intrinsic Value (if any) + Time Value • Intrinsic value • in-the-money amount • Time value • any premium in excess of intrinsic value • decays with time as expiration approaches (“time decay”) • At expiration option worth only intrinsic value • no time
Slide 7: Intrinsic Value vs. Time Value
Intrinsic Value vs. Time Value Option Premium Intrinsic Value Time Value Stock Price Strike Price Time Volatility Interest Rate/Dividends 7
Slide 8: Time Decay/ Theta
Time Decay/ Theta
Slide 9: Theta
Theta Theta: Option value’s sensitivity to time Expected time decay in option value • With the passage of 1 day • Expressed in decimal form (-.080) • Represents cash amount per option • Decay is per calendar day, not trading day • All other pricing factors constant Calls and puts both have negative
Slide 10: Time Decay Not Constant
Time Decay Not Constant At-the-Money Time Option Value $$$ ► Theta In-the-Money Amounts Option Time ► Overall rate of time decay is exponential (accelerates towards expiry) ATM = decay exponential = volatility is key decay factor ITM = decay linear = cost-to-carry is key decay factor 10
Slide 11: Implied Volatility
Nw & ONF 1 “ i re 500 ONO P *N=CUNG« | S-NIN
Slide 12: Volatility
Volatility Historical Volatility: • Price movement of the stock in the past • Factual/measurable/quantifiable • No future guarantees Implied Volatility: • Volatility that is in the market price of an option • Implied volatility is the market’s forecast of the future volatility of the stock’s price.
Slide 13: Volatility
Volatility Today ↑ Stock Price ↓ Historical Implied Volatility Volatility • Only options have implied volatility • IV predicts a stocks future volatility 13
Slide 14: Buying/Selling Calls and Puts
Buying/Selling Calls and Puts
Slide 15: Call Buying Example
Call Buying Example Buy 60.00 strike call at $3.00 + Break-even at Expiration: 5 Long Stock Strike Price + Call Premium Paid at $60.00 $60.00 + $3.00 = $63.00 Maximum Loss: 0 55 60 65 $3.00 Call Premium Paid -$300 $300.00 Total BEP $63.00 5 – 15
Slide 16: Put Buying Example
Put Buying Example Buy 35.00 strike put at $2.25 + Short Stock at Break-even at Expiration: 5 $36.00 Strike Price – Put Premium Paid $35.00 – $2.25 = $32.75 Maximum Loss: 0 $2.25 Put Premium Paid -$225 30 35 40 $225.00 Total BEP $32.75 5 – 16
Slide 17: Call Selling Example
Call Selling Example Sell 60.00 strike call at $3.00 + 5 Break-even at Expiration: Strike Price + Call Premium Rec’d $60.00 + $3.00 = $63.00 $300 0 Maximum Profit: 55 60 65 $3.00 Call Premium Received $300.00 Total 5 Maximum Loss: UNLIMITED – Risks/Reward with Covered Call substantially different! 1
Slide 18: Cash Secured Put Example
Cash Secured Put Example Stock trading $50 Sell 1 XYZ 60-day 45 put at $2.00 Max profit = Premium received Max. Profit*: B/E: $43 $2.00 B/E: Strike minus premium 35 40 45 50 55 Current Share Price *Maximum profit does not consider potential long stock position, if assigned Excludes transaction costs
Slide 19: About OIC
About OIC • FREE unbiased and professional options education • OptionsEducation.org • Online courses, podcasts, videos, & webinars • Investor Services desk at [email protected] 19
The Options Industry Council — Investor Presentation (October 2023) on 6ix