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Hello,

I'm trying to rebuild my foundation knowledge about options.  I see a lot of terms thrown around so it gets confusing as to what people are talking about sometimes.  But is it true that all options are affected by at least these 6 variables: (strike price, underlying price, vol, rates, time, and cash flow)

Also, is it true that all option models factor in at least those variables in to pricing an option (assume if there is no dividend or cash flow that term is still included but we say it is 0), or is this only a characteristics of the BSM model? 

I guess what I'm trying to get at is: are all options affected by these 6 variables?  Or, do we talk about these 6 variables so much because BSM uses these 6 variables, while other models may not consider all of these 6 variables.

Thanks!  I know this is a very beginner question but it will clarify some stuff.  You can delete post after it's answered.

Essentially -- yes. 

One way to think about it is that, for a Euro-style option on a traded underlying, puts and calls will obey put-call parity as a model-independent relation. So, the parameters that appear in put-call parity certainly will/should appear in every model and traded options will be affected by them. That's everything on your list except volatility.

In addtiion, all option models and markets do indeed have -- or are affected by -- "volatility" of some sort, but the precise role can be complicated.  A market or model-independent statement might be, whatever the option model or market, there is a conditional (marginal) risk-neutral distribution at each option expiration T for the underlying S(T). That distribution can always be computed from the Breeden-Litzenberger relation (using market or model option prices) and it will have a positive variance. If it didn't, nobody would be interested in trading options on that underlying asset. So, volatility always plays a role, -- indeed a much more important one than cost-of-carry parameters -- and that completes your list.  

I agree with all of the above, although it doesn't explicitly mention the useful notion of the forward price of the underlying to the option maturity date, which essentially summarizes all the non-volatility components, and is the basis for put-call parity.