📈 Stock Option Underlying Price

Definition

The underlying price refers to the current market price of the asset (typically a stock) on which an option contract is based.
For stock options, it’s the price of the stock that determines the value and behavior of both call and put options.

Why It Matters

Intrinsic Value: The difference between the underlying price and the strike price determines whether an option is in-the-money.
Premium Sensitivity: Option premiums react dynamically to changes in the underlying price.
Delta & Greeks: The underlying price is central to calculating delta, gamma, and other option sensitivities.
Trading Decisions: Traders monitor the underlying price to time entry, exit, and exercise decisions.

Example

Suppose a call option has a strike price of $50 and the underlying stock is trading at $55.
The option is in-the-money with an intrinsic value of:
$55 (underlying) - $50 (strike) = $5

Key Insights

Underlying Price vs. Strike	Option Status	Implication
Above Strike	Call Option	In-the-money; has intrinsic value
Below Strike	Put Option	In-the-money; profitable if exercised
Equal to Strike	Call or Put	At-the-money; mostly time value
Far from Strike	Call or Put	Out-of-the-money; no intrinsic value