← AdvancedLesson 2 · 3:32
What is the T+0 line, and what does volatility do to it?
Summary
You can read the T+0 line, which shows your result today, next to the last-day line. You can explain why the passing of time lifts today's line and higher volatility sinks it, and why a far-out sold put can lose many times its premium before the stock reaches the strike.
Key terms
- T+0 line
- The line that shows your result today, where T is time and zero means no days have passed.
- time value
- The rest of an option's price, paid for the chance things get better before the end, and gone by the last day.
- delta
- How much an option's price moves for a $1 move in the stock, and a rough guide to the chance it finishes in the money.
Check yourself
Answer each question to see why the right answer is right.
1. What does the T+0 line on a payoff graph show?
2. You sold the $93 put on XYZ. The stock stays at $100 while the days pass. What happens to today's line?
3. With the clock frozen and XYZ still at $100, volatility rises from 30% to 60%. What does the seller of the $93 put see?
4. Five days pass, XYZ slips to $95 and volatility jumps to 45%. The last-day line says you make $91, and today's line says you are down $256. Your broker asks for more margin today. Which line matters?
5. Five puts were sold and hit with the same shock. Which lost the most compared with what it collected?
Finished the video and the quiz? .