Its 8am EST here in the US. At around 530am the premium per share for a put option of SPY expiring on 2/28 was $0.13. Between 645 and 730 the premium rose to $0.22. This would suggest that a fall in the price of SPY is more likely than it was when the premium was $0.13. However, around this time, the futures market rose. It was down, in the negative (~-2.5%) but it became less negative. Suggesting that a fall in SPY was less likely. What could possibly cause these indicators to point in opposing directions during that time period?
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1"Its 8am EST here in the US. At around 530am the premium per share for a put option of SPY expiring on 2/28 was $0.13. Between 645 and 730 the premium rose to $0.22." SPY options don't open for trading until 9:30 AM EST so on what are you basing this option price rise from 13 to 22 cents?– Bob BaerkerFeb 24, 2020 at 13:20
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I realize they aren't traded at that time but the premium updated in price on the brokerage account– Runeaway3Feb 24, 2020 at 15:02
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That can only be an estimate of the opening price based on current price at that moment in time and Friday's implied volatility. It also won't account for the spread which could expand or contract when trading opens ao it's not going to be accurate.– Bob BaerkerFeb 24, 2020 at 15:10
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1 Answer
There are many factors that affect the price of an option. Even if the price of the underlying moves the option more out of the money (or less in the money), the price of an option can still go up if the market's expectation of the future market volatility rises enough.
It's simple when you think about it:
Lets say you own a call option that is deep out of the money, and the market doesn't move much day by day (it is not volatile). Your option isn't worth much at all.
But if the market suddenly experiences some event or change in circumstances that causes the prices in the future to fluctuate wildly, then your option might be more likely to end up in the money. Therefore your option is worth more, even if the underlying's price might in the short term move lower and therefore further from your strike.
