Why Long-Dated Call Premiums Can Rise as a Stock Falls

Summary

The note examines why a long-dated, out-of-the-money call option’s observed premium might rise even while the underlying stock falls. The response points to several factors that can move the quoted price: implied volatility had recently increased, time to expiry had shortened between the compared dates, and bid-ask spreads in long-dated out-of-the-money options can be wide. These effects together can make the observed premium behave differently from what a simple stock-price comparison suggests.

The discussion does not isolate the contribution of each factor or establish that a volatility increase alone caused the premium change. It also cautions that sparse or wide quotes can make individual trades hard to compare. Checking implied volatility and quote information can help interpret the move, but the note gives no detailed valuation or trade analysis.

Key ideas

• An option premium depends on more than the underlying share price.
• Higher implied volatility can support a call premium even when the stock price falls.
• Time to expiry changed between the compared observations and is another pricing input.
• Wide bid-ask spreads in long-dated, out-of-the-money options can make observed trades difficult to compare.
• The note does not quantify each factor’s effect on the premium.

Tags

# Why did Tiffany call's premium increase, when its stock price decreased?


# Why did Tiffany call's premium increase, when its stock price decreased?












My grandma has been tracking TIF in the news, and recorded its option premiums. On Jun 9 2020, 1 TIF 2022-01-22 135C sold for \$0.88. On Jun 10 2020, it sold for \$0.5. Today, it sold for $1.6. Which specific variable caused it to increase? She expected TIF's call premiums to tumble, when TIF's share price plummeted after "Luxury goods giant LVMH cancels \$14.5B deal for Tiffany" on 9.9.2020, allegedly by reason of tariffs.

I read Why Did My Stock Go Up and My Call Option Go Down? • TradeSmart University and How Can A Call Option Decline In Value When A Stock Rises?. I don't think US interest rates changed these past 2 days, so $\rho \approx 0$. So I'm surmising that IV rose, so $\nu \uparrow$?

## Answer by kurtosis (score 1, accepted)

https://quant.stackexchange.com/a/57947

From June to September, the time to expiry went from about 1.5 years to 1.25 years. Recently, volatility has gone up as well. The bid-ask spread in long-dated out-of-the-money options can also be very wide. Put that all together and what you are seeing is not surprising.

You can go to the OCC to see implied vols as well as some quote information.

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.