Option Price Behaviour
1. Strike Price – if the stock price don’t move beyond the strike price, then the option will expire worthless
2. Time to Expiration (time decay) – the longer the time, the higher the option price
– the most time decay happens as option is near expiry
3. Effect of Interest Rate on short- term options prices is small
rise in i/r –> rise in CALL, drop in PUT
4. Dividends
– rise in Dividends –> drop in CALL
–> rise in PUT
A stock that pays dvds is more valuable than one that does not. Hence, the cost to insure the stock against price drop will be more expensive (PUT) .
and if PUT is more expensive, the CALL is cheaper.
5. Volatility
– wider range in stock price –> represents higher volatility
Recommendation:
Cboe – IVolatility Services – option calculator to see how option prices are impacted by the variables
6. Implied Volatility
– expectations about the future volatility
– How to find IV –> work backwards using B-S model/ any Online Option Pricing CalculatorRecommendation:
Visit Cboe IV Index for prices.
Related Posts

How to Invest in Gold

Summary on One Up Wall Street by Peter Lynch

How to Learn any Language for Free
About The Author
Andronika
Andronika is borderline mental. To prevent causing distress to those around her, she has decided to set up this personal blog as an outlet and connect to like-minded people. When she is not working on her blog, you can find her with catching up on her never-ending summer reading list, working on her barre moves or taking a siesta.