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Part 3 Learn Institutional Trading

29
Option Pricing & Premiums

The premium (price of option) is determined by many factors:

Intrinsic Value – Difference between current stock price and strike price. Example: If stock = ₹200, strike = ₹180 (call), intrinsic value = ₹20.

Time Value – Extra premium because of time left until expiry. More time = higher premium.

Volatility – Higher volatility increases premium (uncertainty = higher value).

Interest rates & dividends – Also affect option pricing slightly.

The most famous model for pricing options is the Black-Scholes Model, used worldwide.

Moneyness (ITM, ATM, OTM)

Options are classified as:

In The Money (ITM): Option already has intrinsic value. (Example: Stock = ₹250, Call strike = ₹240).

At The Money (ATM): Stock price = strike price.

Out of The Money (OTM): Option has no intrinsic value yet. (Example: Stock = ₹250, Call strike = ₹280).

OTM options are cheaper, but riskier. ITM options are costlier, but safer.

Penafian

Maklumat dan penerbitan adalah tidak dimaksudkan untuk menjadi, dan tidak membentuk, nasihat untuk kewangan, pelaburan, perdagangan dan jenis-jenis lain atau cadangan yang dibekalkan atau disahkan oleh TradingView. Baca dengan lebih lanjut di Terma Penggunaan.