How to Find The Right Price of a Stock Option Using Binomial Option Pricing Model

Ever wondered how to determine the right price for a stock like Tesla? The Binomial Pricing Model is a powerful tool that can help. In this video, we break down the process step by step:

1️⃣ Define the up and down factors using a simple formula to model potential price changes.
2️⃣ Calculate the stock price for upward and downward movements based on these factors.
3️⃣ Determine the Risk-Neutral Probability to align stock movements with a risk-free world where expected returns match the risk-free rate.
4️⃣ Compute the Option Payoff at Maturity, including both call and put options.
5️⃣ Finally, discount the payoffs to their present value, accounting for the time value of money.

Watch now to see how this approach simplifies option pricing and helps you make more informed investment decisions!"