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Trade the events efficiently by knowing what impacts option premium and how: Shubham Agarwal

Here are the basic factors affecting Option Premium and always have these relationships of premium and its factors in mind to trade more efficiently.

January 29, 2022 / 08:51 AM IST

Options as an instrument first comes to mind when we are in a risky situation, and we want to take a trade. The event of Union Budget is one of those situations when most of us rely on options to trade.

However, if you are selling or buying options it is necessary to know how option premiums will move when the underlying stock/index moves.

To understand this, we need to first list the key inputs used to price an option because these inputs would eventually turn into the list of factors for change in option premium.

Option premium is output of 5 inputs
1. Underlying Price
2. Strike Price
3. Time to Expiry
4. Volatility of the Underlying
5. Risk-free Rate of Interest