Can someone? Maybe even the Magician clarify the difference here?
An option’s value is what it should be worth.
An option’s price is what the market pays for it.
(In what context are you using these terms?)
Alternative wording in case you weren’t covered by magician’s
Price is what you give to obtain it.
Value is what you would get if you’d exercise it. (bounded below by zero of course)
Thank you. This makes me want to think that at contract initiation, option price and option value will be the same. This can’t be right because the value of the option will need to be zero. Ugh.
No… can you provide some context for these terms. Something doesn’t sound quite right. Are you sure you’re not talking about intrinsic value and time value?
options always have a price… (time value, volatility, rf, etc all embedded in it calculation)…but when you initiated the option, he sold it, you paid for it, essentially marking-to-market… so its value to either party is reset to zero.
hope this helps
Price should equal value otherwise there is a mispricing.