 The value of an option contract can be determined if an investor buys such a contract well before the expiration date. The value of a call can be determined using its upper and lower bounds. By lower bounds, let's see an American call which is in money prior to its expiration. An example is that we have a stock price of this American call at $60 and the exercise price is $50. This option cannot sell below $10. If the option, let's say, sells at $9, then there is an arbitrage profit of $1. Means that buying the call at $9 with the exercise price of buying the underlying stock at $50 make a total cost of $59 and then selling this stock at $60 will yield the profit of $1 to the holder of this contract. So this $1 is termed as an arbitrage profit. Now we will see that the access demand for this option contract will quickly rise the option as the option price goes to $10. So which is the difference between the stock price of $60 and the exercise price of $50. In this contract, the option price is likely to go above $10 and the rational investor will pay over $10 only in a case if the price of the underlying stock goes above $60 before the expiration date. For example, if the call sells for $12, then the option's intrinsic value is same as we see it is $10. The $2 will be termed as a premium and that is a time premium because this remaining $2 in which is called as a time premium. This is the extra amount that the investor is willing to pay due to the possibility that the price of the underlying stock will go higher. So far as the upper bound is concerned, the question arises does this upper bound exist as well? By upper boundary, we means the price of the underlying stock or the PS. There is no higher value for the option to buy stock at a price of the stock itself. A call option can be used to buy a common stock with a payment of the exercise price. It is better to buy the stock if we can buy it at the price below the price itself. In the graph, we see two bounds colored in red. The value of the call lies between these two bounds. What are the factors that determine the value of a call contract? These factors can be grouped into two classes. The first class is the features of the option contract. In this class, we have two further factors. The first is the exercise price and the second is the expiration date. Any increase in the exercise price will reduce the price of the call. For example, for a given stock price of $50, the exercise price of $50 will reduce more value of the underlying stock if then the exercise price of $40. This means that any rise in the exercise price of $40 beyond this value, the value of the call will go down. So far as the expiration date is concerned, any increase in the expiry date will enhance the value of the call with the other call having similar rights. For example, an American call with maturity of 9 months and the same rights will worth more over the same call expiring in 6 months. The second feature is the characteristics of the stock and market. And we have two further classes in this class that is stock price and the interest rearsome. So far as the stock price is concerned, keeping other things remaining the same, the higher the stock price more valuable will be the call. This means that any increase in the stock price will increase the value of the call. For example, at a stock price of $150, a call with the exercise price of $100 will be more worth than at a stock price of $80. And so far as the interest rate is concerned, the buyer of a call does not pay the exercise price until he exercises the option. And if he does so, this means that delaying the payment worth more valuable during the higher interest rate periods than making payment during the less interest periods. There are factors that can be used to determine the value of an option contract like the calls contract. Now, the effect of three factors on the value of put are the opposite of the three factors that determine the value of a call contract. For example, puts market value declines as the stock price increases because the puts are now in money. When the stock sells below the exercise price, the value of put with a higher exercise price is greater than the value of an otherwise put having the lower exercise price for the similar reason that is happening in the first case. A higher interest rate also adversely affect the value of a put contract. The effect of other two factors on the value of put are now similar to the factors that affect the value of a call contract. Like the value of an American put with a distant expiration date is greater than the identical put with an earlier expiration date. And the value of a put increases as a result of volatility of the underlying stock.