Long Put Scenarios
Options can be used to express your opinion on the market. Put buyers want the underlying price to decrease in value.
The price of an option is influenced by the underlying price, interest rates, time decay and changes in the expected volatility.
Better understand how changes in the underlying price and implied volatility affect a put option’s premium.
https://www.cmegroup.com/content/dam/cmegroup/education/courses/images/long-call-scenarios-02.jpg
The underlying price decreased from 2784.50 to 2754.50 and the put’s premium increased from 47.85 to 63.50. When the underlying price increased from 2784.50 to 2804.50, the put’s premium decreased from 47.85 to 38.95.
https://www.cmegroup.com/content/dam/cmegroup/education/courses/images/long-call-scenarios-03.jpg
The volatility increased from 12 to 14 and the put’s premium increased from 47.85 to 56.06. When the volatility decreased from 12 to 10, the options premium also decreased from 47.85 to 39.68.
https://www.cmegroup.com/content/dam/cmegroup/education/courses/images/long-call-scenarios-06.jpg
The underlying price decreased from 2784.50 to 2754.50. Volatility increased from 12 to 14. The put’s premium increased from 47.85 to 71.52.
https://www.cmegroup.com/content/dam/cmegroup/education/courses/images/long-call-scenarios-07.jpg
The underlying price decreased from 2784.50 to 2754.50. Volatility decreased from 12 to 10. The put’s premium increased from 47.85 to 55.57.
https://www.cmegroup.com/content/dam/cmegroup/education/courses/images/long-call-scenarios-04.jpg
The underlying price increased from 2784.50 to 2804.50. Volatility increased from 12 to 14. The put’s premium decreased from 47.85 to 47.05.
https://www.cmegroup.com/content/dam/cmegroup/education/courses/images/long-call-scenarios-05.jpg
The underlying price increased from 2784.50 to 2804.50. Volatility decreased from 12 to 10. The put’s premium decreased from 47.85 to 30.94.
While underlying price movements are the biggest drivers of an option’s value, there are other drivers such as time, volatility and interest rates.
When trading options all variables need to be considered, and the combination of these variables may lead to different results.