Part 2 Intraday Master Class

How Option Prices Are Determined

The price of an option (premium) is influenced by several factors. The most important include:

1. Underlying Price

As price moves up:

Calls become expensive

Puts become cheaper

As price moves down:

Puts become expensive

Calls become cheaper

2. Volatility

Volatility (IV – Implied Volatility) has a huge impact.

High IV → Expensive premiums
Low IV → Cheaper premiums

IV reflects expected future movement.

3. Time to Expiry

Options decay faster as expiry approaches.

This is called Theta Decay.

Weekly options decay rapidly (especially last 3 days).

4. Interest Rates & Dividends

These influence option pricing slightly but are more relevant for institutional traders.