How does a put option lose its value?

A put option can lose value in three different ways:

  1. If the stock moves up in price, put option values will go down

  2. As time moves towards expiration, put option values will go down

  3. If the volatility of the stocks lessens, put option values will go down.

An option’s price (both calls & puts) are determined by the stock price, how much time is left until expiration and the level of volatility of the stock.

When any of those three determinants changes, the value of the options will change.


-Lee

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