Premium comes from three things: time, distance from the strike, and expected volatility.
Last time we isolated time. this time it's distance from the strike.
Keep the expiry fixed at 7 days for both options.
Only the strike changes.
Let's say that bitcoin:native is near $79,000.
• Strike A: $80,000, priced around $410
• Strike B: $88,000, priced closer to $105
• Same coin, same 7-day expiry
Almost 4x the difference, purely from picking a different strike.
The $80,000 strike is only slightly above today's price. bitcoin:native barely needs to move for it to start paying off.
The $88,000 strike needs roughly an 11% jump in a week.
that's a much bigger ask.
An option already close to being profitable carries less uncertainty, so it's priced higher.
An option that needs a big, unlikely move gets priced like the long shot it is.
Pick two strikes on the same
@CoinDCX expiry and compare them.
Notice how much of the price gap comes down to nothing but distance.
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