An option premium is the price paid by the buyer to the seller for acquiring the right to buy or sell an underlying asset at a fixed price.
Why option premium changes:
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Movement in the underlying price
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Time left until expiry (time decay)
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Market volatility (higher volatility = higher premium)
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Interest rates and dividends
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Demand and supply in the market
Key takeaway:
Option premiums are dynamic because they reflect risk, time, and market expectations—not just price direction.