Boundary conditions were used to establish the minimum and maximum possible values of call and put options prior to the introduction of binomial tree and Black-Scholes pricing models.
The boundary conditions change depending on whether the option is US or European, as US options can be exercised before expiration.
The absolute minimum value of the option is zero, since the option cannot be sold for a negative amount of money.
The maximum value in the boundary condition is set to the current value of the underlying asset.
A horizontal spread is a simultaneous long and short position in derivatives for the same underlying asset and strike price, but with different expiration dates.
Deep-in-the-money options have strike prices that are significantly above or below the market price of the underlying asset and thus contain mostly intrinsic value.
Delta hedging is an options strategy that aims to be directional neutral by establishing compensating long and short positions in the same underlying asset.
The extrinsic value is the difference between the market price of an option, also known as its premium, and its intrinsic price, which is the difference between the strike price of the option and the price of the underlying asset.