FACTORS AFFECTING

CALL & PUT OPTION

PRICES..

6 PRIMARY FACTORS

1. Underlying Price

2. Expected Volatility

3. Strike Price

4. Time Until Expiration

5. Interest Rate

6. Dividends

UNDERLYING PRICE

Definition:

The spot price of the underlying

asset of a derivative

UNDERLYING PRICE

If Underlying Prices Call Prices Will Put Prices Will

Increase Increase Decrease

Decrease Decrease Increase

EXPECTED VOLATILITY

The greater the expected volatility,

the higher the option value

STRIKE PRICE

Defintion:

The price at which a specific derivative

contract can be exercised.

STRIKE PRICE

Premiums increase as

options become further in-the-money

The premium generally decreases as

the option becomes more out-of-the-money

TIME UNTIL EXPIRATION

Definition:

The time remaining until a financial

contract expires.

Also called time to maturity.

TIME UNTIL EXPIRATION

The longer the time until expiration,

the higher the option price

The shorter the time until expiration,

the lower the option price

INTEREST RATE

If Interest Rates Call Prices Will Put Prices Will

Rise Increase Decrease

Fall Decrease Increase

DIVIDENDS

If Dividends Call Prices Will Put Prices Will

Rise Decrease Increase

Fall Increase Decrease