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
– 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.
– wider range in stock price –> represents higher volatility
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.
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