Part 8 Trading Master Class With Experts

How Option Premium Is Determined

The option premium is influenced by several factors, collectively known as the “Greeks.” These include:

Intrinsic Value – The actual value if exercised immediately (difference between market price and strike price).

Time Value – Extra premium paid for the time left before expiration.

Volatility (Vega) – The higher the market volatility, the higher the option premium.

Delta – Measures how much the option’s price changes with a change in the underlying price.

Theta – Indicates how much the option’s value erodes as time passes (time decay).

Rho – Measures sensitivity to interest rate changes.

For example, an option closer to expiry loses time value faster due to Theta decay.