Abstract
The cause and effect of option premium value is elusive to many traders. Many factors come into play, and no simple formula can predict how premium values will change. The influencing factors include:
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time to expiration
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proximity between option strike price and underlying stock current market value
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direction of change in price (in or out of the money)
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volatility of the underlying stock (historical volatility)
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implied volatility of the option
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Notes
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Kumar, R., Sarin, A. & Shastri, K. (April 1998). The Impact of Options Trading on the Market Quality of the Underlying Security: An Empirical Analysis. Journal of Finance, 53(2), pp. 717–732.
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Thomsett, M.C. (2018). Elements of Value. In: The Complete Options Trader. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-76505-1_6
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DOI: https://doi.org/10.1007/978-3-319-76505-1_6
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