Option Trading Strategies

How Option Premium Is Determined

The premium of an option depends on multiple factors. These include:

1. Underlying Price (Spot Price)

Directly impacts option value.

Call premiums rise when price goes up

Put premiums rise when price goes down

2. Time to Expiry (Time Value)

Options lose value as expiry approaches. This is called time decay or theta decay.

3. Volatility (IV – Implied Volatility)

Higher volatility increases premiums because uncertainty is higher.

4. Interest Rates & Demand-Supply

These have smaller effects but still influence prices.