# Theoretical Value (Of a Right)

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## Definition of 'Theoretical Value (Of a Right)'

The theoretical value of a right is the difference between the stock price and the exercise price. The exercise price is the price at which the holder of the right can buy the underlying stock. The stock price is the current market price of the underlying stock.

The theoretical value of a right can be positive or negative. If the stock price is greater than the exercise price, then the theoretical value of the right is positive. This is because the holder of the right can buy the stock at the exercise price and then sell it at the higher stock price, making a profit.

If the stock price is less than the exercise price, then the theoretical value of the right is negative. This is because the holder of the right would lose money by exercising the right.

The theoretical value of a right can change over time as the stock price changes. If the stock price increases, then the theoretical value of the right will increase. If the stock price decreases, then the theoretical value of the right will decrease.

The theoretical value of a right is an important concept for understanding the value of options. Options are financial instruments that give the holder the right to buy or sell an underlying asset at a specified price. The theoretical value of an option is the difference between the strike price and the current market price of the underlying asset.

The theoretical value of an option can be positive or negative. If the option is in the money, then the theoretical value is positive. If the option is out of the money, then the theoretical value is negative.

The theoretical value of an option can change over time as the market price of the underlying asset changes. If the market price of the underlying asset increases, then the theoretical value of the option will increase. If the market price of the underlying asset decreases, then the theoretical value of the option will decrease.

The theoretical value of an option is an important concept for understanding the value of options. However, it is important to note that the theoretical value of an option is not always the same as the actual price of the option. The actual price of an option can be affected by factors such as liquidity, volatility, and time to expiration.

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