Premium prices movement

F&O
1

Does premium prices move based on supply( actual seller) and demand ( actual buyer) or based on greeks and underlying price movement.

2

Could be combination of all but movement in underlying price and Greeks have the most effect on Option premiums. If you read through Options module on Varsity, you should get an idea how things work.

3

So , In equity where price is driven by seller and buyer only . In options, Price is driven by all combination

4

option pricing is complex as it has lot of variables at play, all the above things you mentioned above can move option premiums but movement in underlying price and greeks will have most impact. take for example if underlying increases in value premium of call options will rise and premiums of put options will fall as a result the demand and supply will adjust. for example if call option premium rises seller will be willing to sell are higher price while as put option premium is falling buyer will not want to pay higher premium.

we will have to think practically in this case.

6

Premiums are not based on greeks, in fact its the other way around.

7

premiums are not based on greeks but all the greeks play big role in pricing of the option.

delta effects rate of change in premium with effect to change in underlying price.

theta effects option premium everyday.

vega is effect in option premium with respect to move in implied volatility.

now tell me aren’t premiums based on greeks as well?

8

Option Premiums are based on the Spot price, Strike price, risk free interest rate and days remaining till expiry.

Based on that we assume for every 1 pt change in underlying how much option is changing i.e. delta, how much option price is affected as days pass by i.e. theta. Visit below link to see how market makers calculate the option prices.
https://zerodha.com/tools/black-scholes/

Option prices are not based on Greeks.

9

right about option pricing, but question is also about what moves option prices and it sure is combination underlying price movement, greeks along with demand and supply.

11

Option premium is made up of two things :-

  1. Intrinsic value ( part of the option contract which is ITM)
  2. Extrinsic value / Hope value ( Time value and volatility primium)

So, option premium = Intrinsic value + Extrinsic
value.

Option greeks are a means to represent them… That’s, for time decay we use theta and for volatility we use vega. So indirectly premiums are depends on greeks…

:pray::pray::pray:

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