How to Decides on the Premium Paid on Options Trading ?

How to Decides on the Premium Paid on Options Trading. How is it Calculated ?

Options Premium is not fixed by the Stock Exchange.

The fair value / or   theoretical price of an option can be known with the help of pricing models and  then depending on market conditions the price is determined by competitive bids and offers in the trading environment.

An option's premium / or  price is the sum of Intrinsic value and time value (explained above).

If the price of the underlying stock is held constant, the intrinsic value portion of an option premium will remain constant as well.

Therefore, any change in the price of the option will be entirely due to a change in the option's time value.
The time value component of the option premium can change in response to a change in the volatility of the underlying, the time to expiry, interest rate fluctuations, dividend payments and to the immediate effect of supply  and demand for both the underlying abd its option.


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