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.
Education
