Part 2 Support and Resistance

Intrinsic and Time Value

An option’s price consists of two parts:

Intrinsic Value: The actual profit if exercised now.

Time Value: The extra value based on time left until expiry and volatility expectations.

Hedging and Risk Management

Investors use options to hedge against adverse price movements. For example, holding puts can protect a stock portfolio from market declines—similar to buying insurance.