current market price of abs company is 124 and i have buy call option with strike price of 130 … if the market price crosses the strike price what happens to my option?
If market price starts going up, your 130 calls also go up. But pricing of an option also involves something called time value. So if stock price is going up closer to expiry, lesser time left and hence option price increase will not be much and vice versa.
Suggest you to go through the options module here: http://zerodha.com/varsity/
In order to understand the options contract value,you need to know the keyword underlying asset.for the equity options contract underlying asset is stock.
- If the price of the stock increases the value of contract also increases(in the case of buy call option )
- If the price of stock decreases the options contract value increases (in the case of buy put option contract.
apart from the contract value, there are many factors involved that affect the contract price i,e theta(time value), delta(rate of change of price of the underlying vega (volatility), gamma.
follow this link you will get a clear picture https://www.youtube.com/watch?v=O-a7QapSnkU