Course 502: Introduction to Options
Drivers of Option Value
In this course
1 Introduction
2 Call and Put Options on Stocks
3 What Is an Option Contract?
4 Understanding Option Pricing
5 Drivers of Option Value
6 Basic Option Strategy--Leaps
7 Another Strategy--Baby Puts
8 The Bottom Line

There are several key factors that influence the value of an option. First, the level of volatility in the underlying stock plays a key role. The higher the stock's volatility, the greater the value of the option. If the underlying stock is more volatile, it means the option has a greater chance of trading in the money before the option expires.

Second, the amount of time left until the option expires influences the option's value. The more time left until expiration, the greater the value of the option. Again, the longer until expiration, the more time for an option to trade or finish in the money.

Finally, the direction the underlying stock trades will affect the value of the option. If a stock appreciates, it will positively affect call options and negatively impact put options. If a stock falls, it will have the opposite effect.

Next: Basic Option Strategy--Leaps >>


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