Option Contract Components

What this video covers

• Why the strike price is permanently fixed at creation and never changes during the life of the contract
• How premium equals intrinsic value plus time value, and why none of these three numbers can ever be negative
• Calculating intrinsic value for calls (market price minus strike) and puts (strike minus market price) with a hard floor of $0
• Why time value represents future profit potential, and how time decay erodes premium every day until expiration
• Who benefits from time decay (the seller) and who fights it (the buyer), even when the underlying stock price does not move
• The standard expiration rule: third Friday of the expiration month, after which the option becomes worthless
• Applying the 100-share multiplier to convert quoted premiums into total dollar cost for breakeven, max gain, and max loss calculations