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Option Pricing: The Factors That Determine Option Price

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In this article read to know the important factors that determine Option Pricing.

I assume anyone who has directly landed in this page knows what an option is. If you do not know then in simple terms an Option is a derivative contract that give the holder the right, but not a compulsion to buy it back if sold or to sell it if bought when the Option expires on the Expiry day. Expiry day is usually last trading Thursday of the month in India. If Thursday is a holiday expiry happens on Wednesday. Of course one can buy an Option expiring in 2 months or more.

Though I personally close all In The Money (ITM) Options on the expiry day which I hold because most brokers as a risk management will close the ITM Options at around 3.15 pm at prevailing market prices which you need to accept. I would rather close myself.

Of course you can leave all Out Of The Money (OTM) Options to expire worthless whether you bought or sold them to save on Brokerage charges.

Anyway lets discuss today’s topic Option Pricing: The Factors That Determine Option Price.

A few days back I got this email from one of my email subscriber:

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Hi sir,

I am S. MD (CA Student). I am avid reader of your website articles. I started Nifty Options trading from last 2 months. It’s actually mock trading but with small amount like Rs 1000.

I would like to join your course as soon as I start earning and to my best of knowledge. All of your articles are very informative and educative.

Thanks a lot, you introduced me to ZERODHA (greatest platform for all kind of traders in India).

Sir, today I came across a situation where my Nifty Call Option didn’t increase but the next call options increased. (By next he meant further Out of The Money)

I will explain in detail.

I bought Nifty July 8900 CE at Rs.5/- one lot at that time Nifty July 9000 CE was Rs.3.75 only. At the end of the day my Option was at Rs.5.25 and 9000 CE Option was at Rs.6.90.

Literally I could not believe my eyes because 8900 CE Option opens at 6.15 and 9000 Option at 4.35, but at the end of day 8900 CE Option was 5.25 and 9000 CE Option was 6.15.

What is this Dilip? I am looking for true answer. I need your analyses because I believe you.

I am attaching you the screen short also for your reference.

S. MD (CA Student)
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I know a lot of you must be surprised after reading his email by now. So let’s discuss The Factors That Determine Option Price.
Before reading further I would suggest read one article written by me a few months back because this will form the basis of what we will discuss further:

Options Greeks Explained Delta Gamma Theta Vega Rho

Next we will discuss some Option Basics and Terms used while trading Options which will help you to understand Options even more clearly.


What you should do now

1. If you have still not subscribed for my free 5 days course you can do by filling the form above. You will learn a lot about option trading.

2. If you are a new option trader, not much experienced and are making losses you can do my paid course. I recommend Nifty Conservative Option Course for beginners because it is easy to understand and easy to trade. Even a 18 year old young trader or a housewife can learn it and start trading from next day. It will help you to earn consistent monthly income without any software or speculation or stress or big risk. You will learn proper hedging strategies that works in any market condition.

3. If you are banknifty weekly options trader you can do my Bank Nifty Weekly Options & Futures Strategy Course. You will learn future and option hedging strategies that works in volatile market condition.

NOTE: Here is one more help. You can open a trading account in UPSTOX and send me a WhatsApp message on 9051143004. I will send you a FREE Equity Intraday Strategy that you can start trading and make approx 200 a day. You need 5000 to start trading this strategy.

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Here is complete process of my course

1. Once you pay I will send you the course materials for studying to your email.
2. You read and ask me questions via phone/whatsapp/email to clear doubts.
3. Then you start paper trading and still can ask me questions.
4. After about one month you can start trading.
5. Since doubts can come anytime the support will be there for one year.

Within one month you can start trading on your own. No need to depend on anyone once you are on your own.

If you have any question you can contact me.

You can read about me here and my trading mistakes here.

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INCOME DISCLAIMER: Any references in this site of income made by the traders are given to me by them either through Email or WhatsApp as a Thank You message. However every trade depends on the trader and his level of risk taking capability, knowledge and experience. Moreover stock market investments and trading are subject to market risks. Therefore there is no guarantee that everyone will achieve the same or similar results. My aim is to make you a better & disciplined trader with the stock trading and investing education and strategies you get from this website. Please note that I DO NOT give tips or advisory services by SMS, Email, or WhatsApp or any other form of social media. I strictly adhere to laws of my country. I only offer education on finance, investments on stock markets in the best possible way as much as I can through this website. Still, you must consult an authorized advisor or do thorough research before investing in any stock or derivative before trading any strategy given in this website. I am not responsible for any investment decision you take after reading any article given in this website. Knowledge is the only way to get success in stock markets. I try my best to give stock market investing and trading knowledge through the articles posted in this website. Thanks for visiting my website.

Option Trading Basic Terms
Within 2 Hours Customer Is Happy With The Conservative Option Course

About the author: I started trading stock markets since 2007. However my first 3 years were losses. Then I dedicated almost 1 year on studying, researching, paper trading options and learned a lot in that time. Since 2011 I am trading Nifty options profitably. Call me if you need any help trading options on 9051143004.

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