Listen to a Business English Dialogue About Option price
Willow: Hi Paisley, do you know what option price means in business and finance?
Paisley: No, I’m not sure. What is it?
Willow: Option price is the amount of money that a buyer pays to purchase an option contract, which gives them the right to buy or sell an underlying asset at a specified price.
Paisley: Oh, so it’s like the cost of buying the opportunity to buy or sell something?
Willow: Exactly. The option price is also known as the premium, and it’s influenced by factors like the current price of the underlying asset, the strike price, and the time to expiration.
Paisley: Can you give an example of how option price works?
Willow: Sure, for example, if you’re buying a call option on a stock with a strike price of $50 and the current stock price is $55, the option price might be $3.
Paisley: How does the strike price affect the option price?
Willow: The strike price is the price at which the option holder can buy or sell the underlying asset, and it influences the likelihood that the option will be profitable, which in turn affects the option price.
Paisley: Are there any risks associated with buying options?
Willow: Yes, options trading carries risks, including the risk of losing the entire premium paid if the option expires worthless or if the underlying asset moves against the option holder’s position.
Paisley: How do changes in market volatility affect option prices?
Willow: Higher market volatility tends to increase option prices because it increases the likelihood of the underlying asset reaching the strike price before expiration.
Paisley: Thanks for explaining, Willow. Option prices seem like an important aspect of options trading.
Willow: No problem, Paisley. Understanding option prices is essential for making informed decisions in the options market.