There are six factors affecting the price of a stock option:
See Also
The 5-3-1 Rule for Trading Forex Like a Pro – Blackwell GlobalIV Rank and Liquidity Rank - OptionsPlayOption Premium: Definition, Factors Affecting Pricing, and ExampleLimit order for options | RobinhoodThe current stock price,
The strike price, K
The time to expiration, T
The volatility of the stock price, σ
The risk-free interest rate, r
The dividends that are expected to be paid.
In this section, we consider what happens to option prices when there is a change to one of these factors, with all the other factors remaining fixed. The results are summarized in Table 11.1.
| Variable | European call | European put | American call | American put |
|---|---|---|---|---|
| Current stock price | + | − | + | − |
| Strike price | − | + | − | + |
| Time to expiration | ? | ? | + | + |
| Volatility | + | + | + | + |
| Risk-free rate | + | − | + | − |
| Amount of future dividends | − | + | − | + |
+ indicates that an increase in the ... | ||||
