31.11 Lessons learnt: time value

What have we learnt?

We have touched down on five main elements that have an impact on the time value of an option:

1. Interest: Rising interest rates result in the premium of call options becoming more expensive 

2. Dividend:  A dividend payment, in general, causes the price of the call option to go up slightly

3. Underlying value: A move in the underlying value causes changes to the option premium 

5. The  two most important elements that influence the price of an option and therefore the time value are:

• Volatility: The more the market moves the higher or more expensive the option premium will be valued
• Duration: The longer the duration of an option contract the more absolute premium you pay. However, relatively, in many cases,  the option is cheaper.