Chapter 05 · Section 5.1

Relationship between the premium and the price

What is the relationship between the premium and the price of the underlying?

a) The premium of the option will move up or down by the same amount as the price of the underlying.
No. The relationship between the two is not that direct. There are other important factors that also influence the premium: time remaining to expiration, volatility, and the amount by which the option is in-the-money.
b) There are many factors which influence the change in the premium relative to the price of the underlying.