The different components that influence the option premium and especially in the negative manner is critical to understand, the option strategy’s soft spot or Achilles’ heel.

How does the option premium move? As per the model, we know there are multi-dimensions to it. It is broken into components with

**Delta** --------------------------------------> sensitivity to underlying price

**Theta** --------------------------------------> sensitivity to Time to Expiry

**Vega** --------------------------------------> sensitivity to Volatility

**Rho** --------------------------------------> sensitivity to interest rates

These aforementioned Option Greeks are studied keeping the other variables constant, expect the pair under consideration for a particular Greek. The need to understand the concept of "Options Pricing Dynamics" is to delve deeper into the "Greeks". The Greeks are critical to the understanding of Options Trading, as the basic dynamics lies around them. Without understanding the interplay of these variables, one can never really master the art of an options trading strategy. The beauty of trading in options is that one can derive profits from time decay as well as movement of the underlying

asset itself, or changes in volatility. Hence, to understand the dynamics of option premia and their trajectory, requires a proper understanding of the option greeks. The first order option greeks explained ahead (in subsequent chapters) : Delta, Vega and Theta.

Based on this data, its quick to realise that all the variables being considered above in the BS model are dynamic and moving simultaneously, so,

*“Options pricing is not a one-dimensional exercise but a multi-dimensional, intermingled approach.”*

Consider the following instance:

The primary driver of an option's price is the expected value of its delta which accounts for the change in the value of the call/put over the life of the contract, to the change in underlying price.

We have realised that the value of delta depends on the price of the underlying asset, strike price and the time to expiry of the option. Thus, the delta changes constantly as the price of the stock changes and as the expiration date approaches. The greater the change of the option premia for a given underlying stock value change, the greater will be the value of delta.