Pricing fundamentals

An option's price isn't arbitrary. It splits into two parts — what it's worth right now (intrinsic value) and what it might be worth between now and expiration (extrinsic value, sometimes called time value). This module covers the structural reasons option prices behave the way they do, before introducing the greeks that quantify the sensitivities.

The articles here are pre-greek. They establish the model. Intrinsic vs Extrinsic Value shows how the two components shift as the underlying moves. Put-Call Parity is the no-arbitrage relationship that ties every call to a put at the same strike. Black-Scholes in Plain English covers what the textbook formula assumes, what it gives you, and where it quietly breaks for 0DTE. Moneyness: ITM, ATM, OTM covers why ATM, ITM, and OTM options behave very differently from each other — a distinction that matters even more on expiration day. Touch Probability vs ITM Probability closes the probabilistic picture: delta tells you how often an option finishes in-the-money, but a related-and-often-larger probability — touching the strike at any point — is what governs how often a position gets tested.

You don't need to memorize formulas. The mental model is what matters: prices reflect both where the underlying is and where it might go, weighted by how much time is left and how much movement the market expects in that time. The greeks in the next module are tools for measuring how that price changes when each input changes — easier to internalize once the structural picture from this module is in place.