The six inputs that determine an option's value are stock price, strike price, time to expiration, interest rate, dividend yield and volatility (over the life of the option). Normally, if the stock price goes up and the other factors remain the same, then a call option goes higher. Therefore, if the call option has gone down, then one of the other factors must have changed.
The passage of time can certainly push an option's value lower. A dividend payment may also have an impact. The real wild card is implied volatility. Sometimes, the market bids up the implied volatility in anticipation of a market-moving event such as earnings release or a major speech by an important person. After the event, the implied volatility often drops sharply, especially if the event failed to have the expected impact. Visiti our learning center to learn more about Volatility.
Use our website’s calculator to see how volatility changes can affect option premiums. Visit our learning center for more information on Options Pricing.