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the higher the stock price, the higher the price of the call option.
The longer the option has to run, the greater its value.
The greater the volatility of the underlying stock in question, the higher the cost of a call option.
The ability to delay payment is more valuable when interest rates are high
if the stock rises to $150 at the end of one year, the call option will be worth $50, its intrinsic value. If the stock declines, however, the option will expire worthless. Obviously, an option to buy something at $100 when it can be purchased on the market at $75 is not worth anything.
DETERMINATION OF HEDGE RATIO
We form perfectly hedged portfolios of holding stock and writing call options. Such riskless portfolios should earn only the risk-free interest rate in an efficiently functioning market.
A RANDOM WALKER’S ADDRESS BOOK AND REFERENCE GUIDE TO MUTUAL FUNDS AND ETFS
