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Pricing Options: Probabilities
Introducing Delta and how probabilities affect option prices
Recap
Next we will talk about the affects of volatility on option prices and their probabilities. But first... let's review!
Option Prices & Probability
- Option prices are affected by their probability of expiring ITM
- We can estimate probability of ITM using the greek metric, Delta (Δ)
- Delta also indicates a position's directional bias and share equivalency
- Delta constantly fluctuates with changes in share price, volatility, and time before expiration.
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