Factors affecting option value
1. Market price of the underlying asset
Under certain other conditions, the value of a call option increases as the market price of the underlying asset rises; the value of a put option decreases as the market price of the underlying asset rises.
2. Execution price
Under certain other conditions, the higher the execution price of the call option, the higher The higher the strike price of the put option, the smaller the value of the option; the higher the strike price of the put option, the greater the value of the option.
3. Expiration period
For American options, whether it is a put option or a call option , under certain other conditions, the longer the expiration time, the higher the expiration value of the option. But note that this conclusion may not be true for European options. First, an option with a longer maturity will not increase the chance of execution than an option with a shorter maturity; second, a call option with a longer maturity may have a value deduction due to the distribution of cash dividends by the underlying stock.
4. Underlying asset price volatility
The greater the underlying asset price volatility, the greater the option value. big. For investors who buy call options, they can make profits if the price of the underlying asset rises. The maximum loss if the price of the underlying asset falls is limited to the option premium. The two will not offset each other. Therefore, the greater the volatility of the price of the underlying asset, the greater the value of the option. Large; for investors who purchase put options, profits can be made if the price of the underlying asset drops, and the maximum loss if the price of the underlying asset rises is limited to the option premium, and the two will not offset each other. Therefore, the greater the volatility of the price of the underlying asset, the higher the price of the option. The greater the value.
5. Risk-free interest rate
If the time value of money is considered, investors buy call options The present value of the future strike price decreases as interest rates increase, that is, the present value of the investment cost decreases. At this time, the cost of purchasing stocks at a fixed strike price in the future period decreases, and the value of the call option increases. Therefore, the value of the call option Positively related to changes in interest rates; investors buy put options at future strike pricesThe present value of , decreases as interest rates increase. At this time, the smaller the present value income from selling stocks at a fixed strike price in the future period, the smaller the value of the put option. Therefore, the value of the put option changes inversely with interest rates.
6. Expected dividends
After the ex-dividend date, the distribution of cash dividends causes the stock price to decrease, which is bullish The value of the option decreases, while the value of the put option increases. Therefore, the value of a call option is negatively correlated with the expected dividends during the option's validity period, while the value of a put option is positively correlated with the expected dividends during the option's validity.
