Option Price Behaviour

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


4. Dividends

- 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.


5. Volatility

- wider range in stock price --> represents higher volatility

Recommendation: 
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.