What factors determine the value of an option?


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The factors are
a. Maturity of an option: higher the price higher the value of an option and vice a versa
b. Spot price of underlying assets:
c. Strike price of underlying assets:
d. Interest rate structure in the market: higher the interest rate structure in the market higher the value of an option and vice a versa
e. Volatility: higher the volatility in the market higher the value of an option and vice a versa. This is so because higher the volatility in the market, higher the potential for earning more, thus the buyer of an option has to pay more premium.


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