In part 1 of the call options guide, we shared about a story of how Jerry made used of the concept of call options to purchase his dream house in Japan. In that story, the call option that Jerry bought is valued at $10,000 and the value of the option stays constant at $10,000. But this is not how it works for the call options in the financial markets.
So why does the value of the call option fluctuate? Here are some factors that affect the value of call options:
1. Movement of the market price in relation to the strike price will affect the value of the call option
2. Time decay
Watch the full video below as we explain in detail (with numbers) why, and how the factors influence the value of call options.
P.S. The reasoning is really intuitive!
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