🧾 Capital Market Chronicles – Episode 201: OPTIONS VALUATION (Part I)
If options could talk, they’d probably spend most of their time asking, “So… what am I worth today?” 😅
Unlike expiry-day pricing — where life is simple (you’re either in the money 💰 or out of it 🙈) — pre-expiry pricing is a thrilling mix of math, psychology, and market mood swings!
Before an option expires, its value dances to the tune of several key factors — the underlying stock price, strike price, time left to expiry, volatility, interest rates, and even dividend payouts. Let’s see how each of these factors adds flavor to the pricing pot 🍲.
1️⃣ Underlying Stock Price – The Prime Mover
Think of this as the heartbeat ❤️ of your option.
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Call Options: As the stock price goes up, your call option feels stronger and its premium rises.
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Put Options: As the stock price falls, the put option grins ear to ear 😎 — its value increases.
In short:
📈 Higher stock price = higher call premium
📉 Lower stock price = higher put premium
2️⃣ Strike Price – The Benchmark of Dreams
The strike price is where the real tug-of-war begins.
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Calls: A lower strike price makes a call more valuable (you’re getting a better deal!).
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Puts: A higher strike price means a higher premium — because it gives you the right to sell at a better rate.
Example:
An INFY call at ₹1,000 might have a ₹20 premium, but the same call at ₹960 could be worth ₹24. A tiny tweak, a big difference!
In summary:
💡 Call Options: Lower strike = Higher premium
💡 Put Options: Higher strike = Higher premium
🪄 Next episode: we explore the twin troublemakers of time and volatility — because in the world of options, even time has a price tag! ⏳
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