Part 8 Trading Master Class

Option Pricing

Option prices depend on several factors, collectively described by the Black-Scholes model. The main components are:

Underlying price: The current price of the stock or index.

Strike price: Determines whether the option is ITM, ATM, or OTM.

Time to expiration: Longer duration means higher premium, as there’s more time for the market to move favorably.

Volatility: Higher volatility increases premium since price movements are more unpredictable.

Interest rates and dividends: These have smaller effects but are still part of option pricing.

The relationship between these factors is known as the “Greeks.”