⏰ Capital Market Chronicles – Episode 202: OPTIONS VALUATION (Part II)
Welcome back to the land of fluctuating fortunes! Today, we meet two fascinating creatures in the options jungle — Time and Volatility.
3️⃣ Time to Expiry – The Ticking Value Bomb ⏳
Every option has an expiry date — and until that day arrives, time itself is a valuable asset.
The longer you have before expiry, the greater the chance that your option might end up profitable. More time = more possibilities = higher premium.
Think of it as renting “hope” — and hope, dear investor, isn’t cheap! 😜
Example: A 3-month option generally costs more than a 1-month one because there’s more time for luck (or logic) to work its magic.
Summary:
🕰️ More time = Higher premium for both calls and puts
4️⃣ Volatility – The Drama Queen of Option Pricing 🎭
Volatility measures how wildly a stock price swings.
High volatility means more uncertainty — but also more opportunities for profit. Naturally, both calls and puts love volatility because it increases the odds of ending up in the money.
Example: A stock that behaves like a roller coaster 🎢 will make option premiums shoot up — because the ride could end anywhere!
Summary:
⚡ Higher volatility = Higher premium for both calls and puts
🪄 Next episode: we’ll tie up the trilogy with the final pieces of the puzzle — interest rates, dividends, and how all these factors come together under the legendary Black-Scholes model. 🎓
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