Premium & Time Decay

An option’s price depends on the stock price, time left and expected volatility. Here is how time decay eats option value, why it speeds up near expiration and how volatility changes premiums.

What drives the premium

• Stock price versus strike: more intrinsic value means a higher premium.
• Time left: more time means a higher premium.
• Implied volatility: bigger expected swings mean a higher premium.
• Interest rates and dividends: smaller effects.

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