Options Jive

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What Drives Options Prices?

Options Jive

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

On tastytrade Live, we are constantly talking options and implied volatility (IV). We know that there is a direct link between this derivative instrument that allows someone to either buy or sell an underlying market like stocks at a specific price and the volatility gauge we often see paired with it.

This episode of Options Jive clears up the relationship between these two important financial products. Options are bought and sold in the open market, and based on their current value, we can establish an expected price range for the underlying market as denoted by the implied volatility. That is, IV rises and falls with the prices of options; whereby more demand for options drives the price of those options higher which, in turn, will drive the IV and expected price range going forward.

However, this rise and fall in demand for options is driven by a few different forces, which we work out in the segment above. For a clear explanation on the relationship between options and implied volatility followed by a conversation on the drivers of this relationship, watch the above segment.

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