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The higher the ‘t’ or ‘v’, the higher chance that the shares will move into a favorable position, therefore the higher the option value is.
But there is also a higher chance that the shares will move into an unfavorable position, why the option value is still higher?
And BSOP is used for European option pricing, it should only be the last day that affect option pricing, but why does ‘t’ matter for the valuation, pls?
Thanks for your explanation.It is because the seller is only concerned with the chance of ‘losing’ and the chance of ‘losing’ increases.
(Maybe a bad example, but if I tell you that if you roll a dice and I will pay you money if you get a 6, then the more chances I give you the more chance there is of me having to pay out 🙂 )t still matters for European style options for the same reason. If there is a long time to expiration then there is more chance of the share price reaching the exercise price then if there is only a short time.
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