OPTION BASIC :- UNDERSTANDING THE CONCEPT OF INTRINSIC VALUE IN
OPTION TRADING :-
Intrinsic value of a call option = Spot Price - Strike Price
Intrinsic value of a put option = strike price - Spot Price
Note:-
Spot Price :- The Price at which underlying assets (shares, stocks, index etc.) trades in the Spot Market or Cash Market.
Strike Price: - The Price specified in the Option Contract is known as Strike Price or the Exercise Price.
Example: -
Intrinsic Value of Call Option :-
If you Buy NIFTY 6000 Call April Expiry @ RS. 63 on 04 April 2011 and if NIFTY Spot closes at 6150 on April Expiry date, Then in this case...........
Strike Price = 6000
Option Contract = April Expiry
Spot Price on the date of April Expiry = 6150
Option Premium = Rs.63
Intrinsic Value of Call Option = Spot Price - Strike Price means, 6150 - 6000 = +150
So the Intrinsic Value of the Call Option in this case is +150 means this call option is In the Money Call Option. In "In the Money Call Option" Spot Price > Strike Price and there will be positive cash flow to the option holder which is Rs. 150 per lot.
Intrinsic Value of Put Option :-
If you Buy NIFTY 5700 Put April Expiry @ Rs. 60 and if NIFTY Spot closes at 5600 on April Expiry Date, then in this case....
Strike Price = 5700
Option Contract = April Expiry
Spot Price on the date of April Expiry = 5600
Option Premium = Rs.60
Intrinsic Value of Put Option = Strike Price - Spot Price means, 5700 - 5600 = +100
So the Intrinsic Value of the Put Option in this case is +100 means, this put option is In the Money Put Option. In "In the Money Put Option" Strike Price > Spot Price and there will be positive cash flow to the option holder which is Rs. 100 per lot.
The intrinsic value of an option is the amount an
option holder can realize by exercising the option immediately. Intrinsic value
is always positive or zero. An out-of-the-money option has zero intrinsic
value.
Intrinsic value of a call option = Spot Price - Strike Price
Intrinsic value of a put option = strike price - Spot Price
Note:-
Spot Price :- The Price at which underlying assets (shares, stocks, index etc.) trades in the Spot Market or Cash Market.
Strike Price: - The Price specified in the Option Contract is known as Strike Price or the Exercise Price.
Example: -
Intrinsic Value of Call Option :-
If you Buy NIFTY 6000 Call April Expiry @ RS. 63 on 04 April 2011 and if NIFTY Spot closes at 6150 on April Expiry date, Then in this case...........
Strike Price = 6000
Option Contract = April Expiry
Spot Price on the date of April Expiry = 6150
Option Premium = Rs.63
Intrinsic Value of Call Option = Spot Price - Strike Price means, 6150 - 6000 = +150
So the Intrinsic Value of the Call Option in this case is +150 means this call option is In the Money Call Option. In "In the Money Call Option" Spot Price > Strike Price and there will be positive cash flow to the option holder which is Rs. 150 per lot.
Intrinsic Value of Put Option :-
If you Buy NIFTY 5700 Put April Expiry @ Rs. 60 and if NIFTY Spot closes at 5600 on April Expiry Date, then in this case....
Strike Price = 5700
Option Contract = April Expiry
Spot Price on the date of April Expiry = 5600
Option Premium = Rs.60
Intrinsic Value of Put Option = Strike Price - Spot Price means, 5700 - 5600 = +100
So the Intrinsic Value of the Put Option in this case is +100 means, this put option is In the Money Put Option. In "In the Money Put Option" Strike Price > Spot Price and there will be positive cash flow to the option holder which is Rs. 100 per lot.
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