The Intelligent Investor’s Guide to Option Pricing  •  53
Notice that by moving the strike down from an expected 5 percent chance 
of success to an expected 20 percent chance of success, we have agreed that we 
would pay four times the amount to play. What would happen if we lowered the 
strike to $50 so that the exposure range started at the present price of the stock? 
Obviously, this at-the-money (ATM) option would be more expensive still:
5/18/2012
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5/20/2013 249 499 749 999
Advanced Building Corp. (ABC)
Date/Day Count
Stock Price
GREEN
The range of upside exposure we have gained with this option is not only 
well within the BSM probability cone, but in fact it lies across the dotted line in-
dicating the “most likely” future stock value as predicted by the BSM. In other 
words, this option has a bit better than a 50 percent chance of paying off, so it 
should be proportionally more expensive than either of our previous options.
The payouts and probabilities I provided earlier are completely made 
up in order to show the principles underlying the probabilistic pricing of 
option contracts. However, by looking at an option pricing screen, it is very 
easy to extrapolate annualized prices associated with each of the probabil-
ity levels I mentioned—5, 20, and 50 percent.
The following table lists the relative market prices of call options cor-
responding to each of the preceding diagrams.
1 The table also shows the 
calculation of the call price as a percentage of the present price of the stock 
($50) as well as the strike–stock price ratio , which shows how far above or 
below the present stock price a given strike price is.