{"id":863,"date":"2010-06-16T14:33:43","date_gmt":"2010-06-16T20:33:43","guid":{"rendered":"http:\/\/76.12.196.78\/?p=863"},"modified":"2010-06-16T14:33:43","modified_gmt":"2010-06-16T20:33:43","slug":"three-most-important-things-affecting-option-pricing-stock-price-time-and-implied-volatility","status":"publish","type":"post","link":"https:\/\/www.optionsanimal.com\/three-most-important-things-affecting-option-pricing-stock-price-time-and-implied-volatility\/","title":{"rendered":"The Three Most Important Things Affecting Option Pricing: Stock Price, Time, and Implied Volatility"},"content":{"rendered":"
1. Stock Price<\/strong><\/p>\n This relationship is the simplest concept to understand. The fact that stock price impacts option pricing is obvious and the first concept that is usually understood by people new to options. Calls go up when the stock goes up. Puts go up when the stock goes down. If we are bullish we can buy calls or sell puts. If we are bearish we can buy puts or sell calls. (Important advice: you generally do not want to sell options without having another option or stock to cover it. This is called naked sell<\/em>ing<\/em>. As the saying goes \u201cYou can lose more than your dignity going naked.\u201d) Using a combination of stock, calls, and puts we can build an almost infinite number of trades to take advantage of any imaginable trend. This is the power of options.<\/p>\n 2. Time Remaining In the Option<\/strong><\/p>\n It\u2019s intuitively obvious that if you want to have control of something for a longer period of time it will cost more money. Just like that beach house down by the shore. Nightly rentals are going to be pretty expensive, let\u2019s say $750 per night. However, if you want to rent for a week, it\u2019s going to cost $4,550. And if you want to lease for the summer, it\u2019s going to cost you $40,500. If you are one of those people who love the beach year round, you can opt for the one-year lease at $73,000 for the year. On the face, those number look pretty expensive. But, let\u2019s break it down.<\/p>\n