Formula: c = s n (d 1)-x exp (-r t) n (D2), where d1= [ln (s/x)+(r+σ 2/2) t]/(σ √ t). D2 = d 1-σ√T c- initial reasonable price of option X- option execution price S- current price of traded financial assets T- option validity period R- risk-free interest rate of continuous compound interest σ-annual volatility (standard deviation) N(d 1), N(D2)- accumulation of normal distribution variables.

share price

Stock price is an important factor affecting the value of options. Call option holder's right to buy a certain number of shares at a specific price, because the exercise price is fixed. If the stock price rises, the difference between the stock price and the exercise price-that is, the intrinsic value-will increase, so the value of the call option will also increase. Similarly, because the put option holder has the right to sell a certain number of shares at a specific price, the lower the stock price, the higher the difference between the exercise price and the stock price, so the value of the put option will also increase.

Time remaining from due date

Other things being equal, the option with more time left will be more valuable than the option with less time left. This is because the more time left before the expiration date, the greater the chance of stock price change: it may be in a favorable direction for the buyer or in an unfavorable direction. However, with the arrival of the maturity date, the chances of price changes will decrease, so will the chances of favorable changes and the time value. However, the decrease speed of time value is not proportional to the decrease of remaining time. When the time from the due date is long, the time value decreases slowly, but when the time from the due date is short, the time value decreases quickly.

Amplitude rate

Whether it is a call option or a put option, the value of the option will increase when the fluctuation rate of the stock increases. Investors should know that the gains and losses of options are asymmetric, and the greater the volatility, the greater the chance that options will become inside and outside the price. However, because the option buyer can choose to give up exercising his rights when the market situation is unfavorable, the biggest loss faced by the buyer is the option premium, and the risk has been locked. On the contrary, the profit level rises with the fluctuation of the stock price (when it is in the buyer's favorable direction), because the intrinsic value of the option (that is, profit) is increasing, so the volatility has a positive impact on the value of the option.

bonus

Assuming that other factors remain unchanged, dividend distribution will lead to a decline in the stock price, and the value of call options will decline because of the decrease in intrinsic value. On the contrary, the value of put option will increase because of its intrinsic value.

interest rate

The interest rate is related to the opportunity cost of option trading. When buying a call option, you only need to pay the deposit (option premium) first, then pay the full amount after exercising, and pay the full amount immediately when buying a stock. Therefore, the higher the interest rate, the more favorable it is for the buyer who subscribes for the option. With the increase of interest rate, the price of call options increases. Put options are just the opposite.