Divergence Secrets

How Option Pricing Works

The price (premium) of an option is influenced by several factors, collectively known as the “Option Greeks”:

Delta: Measures how much the option price changes with a ₹1 change in the underlying asset.

Gamma: Indicates the rate of change of Delta.

Theta: Represents the time decay of the option’s value as it approaches expiry.

Vega: Measures sensitivity to volatility.

Rho: Indicates sensitivity to interest rate changes.
Additionally, the volatility of the underlying asset and time to expiry play crucial roles in determining option prices. Higher volatility increases the premium, as uncertainty boosts the potential for profit.