Economics Options And Futures Questions
There are several factors that influence options and futures prices, including:
1. Underlying asset price: The price of the underlying asset, such as a stock or commodity, has a direct impact on the value of options and futures contracts. As the underlying asset price changes, the value of the options and futures contracts will also change.
2. Strike price: The strike price is the predetermined price at which the underlying asset can be bought or sold. The relationship between the strike price and the current price of the underlying asset affects the value of options and futures contracts.
3. Time to expiration: The time remaining until the options or futures contract expires is an important factor. As the expiration date approaches, the value of the contract may change due to the diminishing time value.
4. Volatility: Volatility refers to the degree of price fluctuations in the underlying asset. Higher volatility generally leads to higher options and futures prices, as there is a greater chance for significant price movements.
5. Interest rates: Interest rates can impact the cost of carrying the underlying asset and affect the pricing of options and futures contracts. Higher interest rates may increase the cost of holding the asset, leading to higher futures prices.
6. Dividends: For options on stocks, the payment of dividends can affect the pricing. Generally, when a stock pays a dividend, the price of the stock decreases, which can impact the value of options on that stock.
7. Market sentiment: Overall market sentiment and investor expectations can influence options and futures prices. Positive or negative market sentiment can lead to changes in demand and supply, affecting the prices of these contracts.
It is important to note that these factors interact with each other and can vary depending on the specific market and contract being traded.