The graphing convention for the call option (top) and the put option (bottom) is valuable in Option Anatomy, as it enables us to visualize all the parts of the option contract, as well as their relation to one another.
In Option Behavior, this type of graph is priceless because it shows you how every component of the option behaves in response to the key variables¹ that influence the option's price. The key variables¹ are:
Implied Volatility (IV), which reflects the market's expectation of the stock's² future volatility
Movement in the underlying stock² price
Decay, which is the reduction in the option's premium as time passes
¹Dividends and the risk-free interest rate also play a role in option pricing. However, with regard to the daily behavior of option prices, the three key variables listed above are those that matter.
²Throughout the OKX, the word "stock" can be replaced with any underlying asset on which options are traded.
