Basics of Options Trading FAQs

What are the elements that can change the value of the premium of an Options ?

Six factors affect the premium for an option.


Price of the underpinning: If the price of the sub-underlying rises, the premium value for Call Option will increase while that of Put Option will decrease.

The intrinsic value of an option is the amount of an option that can be exercised today. So, the spot price is different from strike price. A decrease in intrinsic value can affect the value or Call Option, while an increase can boost the value of the Put Option.

Volatility of underlying stock: This is the probability that the price of the underlying will fluctuate. It also impacts the value of the Option. Higher volatility will result in a higher premium.

Time until expiration: This affects the premium. The premium will be lower if the expiration date is closer to the actual one, and vice versa.

No risk interest rate: The country's prevailing interest rates have an indirect and nominal impact on premium pricing. High interest rates equals high premium, and vice versa.

Premium pricing is also affected by dividends. The Options prices are adjusted to account for non-dividend day dividends of greater than 10%. This is according to SEBI regulations. The premium will decrease if the dividend is higher, and vice versa.

Market factors have an impact on the call option price and the put option price




Call Option Price Effect


Influence on the Put Option Price


Value increase






Intense value increase




The increase


Time Value Increase






Volatility is rising






Inflation rates increase






Increase in Dividends





What is the work of Options ?

How many types of Options ?

What is strike price of option ?

When does Options expire?

What is the process for trading options ?

How futures and Options are different ?

How Nifty can be traded ?

What will happen when an option expires out of money ?

Do I have to pay margin in Options ?

How can the Options contracts be settled ?

What do you mean by Covered Options ?

When do you mean by Naked Options ?

What does American Options refers to ?

What does European option mean? ?

In Options , What is the meaning of At-The-Money , Out-of-the-Money (OTM) and In-The-Money ?

How to take decision on either to buy /sell call Option or put Option ?

Is it possible to trade on option of any stock or index?

How Square off and exercise an Option is different ?

What does intrinsic value of an option mean and how to calculate intrinsic value of an option ?

What does time value of an Option mean ?