- Login |
- Open Account |
- Blog |

- Login |
- Open Account |
- Blog |

An option premium consists of components, namely Intrinsic value and the Time value.

** Option premium = Intrinsic value + Time value **

ITM | ATM | OTM | |
---|---|---|---|

INTRINSIC VALUE | YES | NO | NO |

TIME VALUE | YES | YES | YES |

** Intrinsic value: ** The Intrinsic value is the amount by which the strike price of an option is In-the-money. The Intrinsic value for call option will be the underlying stock’s price minus its call strike price, whereas for the put option, it is the put strike price minus the underlying stock price. ATM and OTM options don’t have any Intrinsic value.

** Time Value: ** The Time value is also referred to as the Extrinsic value. It is the excess amount over and above an option’s intrinsic value. Time value decreases to zero over time as the option moves closer to expiration. This circumstance is called as Time decay. Options premium depends on time to expiration. Options that would expire after a longer duration of time would be more expensive as compared to those expiring in the current month as the former would have more time value left, increasing the probability of trade going in your favour.

An In-the-money call option is described as a call option whose strike price is less than the spot price of the underlying assets.

In the following example of Nifty, the In-the-money call option would be any strike price below Rs.8300 (spot price) of the stock (i.e. Strike price< Spot price).So, NIFTY FEB 8200 CALL would be the example of In-the-money call. An In-the-money option always has some Intrinsic value and Time value.

An At-the-money call option is described as a call option whose strike price is approximately equal to spot price of the underlying assets (i.e. Strike price=Spot price). Hence, NIFTY FEB 8300 CALL would be an example of At-the-money call option, where the spot price is Rs 8300. An At-the-money call option doesn’t have any Intrinsic value and it consists of only time value.

An Out-the-money call option is described as a call option whose strike price is higher than the spot price of the underlying assets(i.e. Strike price> Spot price).Thus, an Out-the-money call option’s entire premium consists of Time value/Extrinsic value and it doesn’t have any Intrinsic value. So, NIFTY FEB 8400 CALL would be an example of Out-the-money call option, where the spot price is Rs 8300.

NIFTY (CALL OPTION) | Expiry: 23FEB2017 | SPOT PRICE: 8300 | ||
---|---|---|---|---|

STRIKE PRICE | STATUS | OPTION PRICE | INTRINSIC VALUE | TIME VALUE |

8000 | ITM | 330 | 300 | 30 |

8100 | ITM | 240 | 200 | 40 |

8200 | ITM | 160 | 100 | 60 |

8300 | ATM | 80 | 0 | 80 |

8400 | OTM | 60 | 0 | 60 |

8500 | OTM | 40 | 0 | 40 |

8600 | OTM | 30 | 0 | 30 |

An In-the-money put option is described as a put option whose strike price is higher than the current price of the underlying. An In-the-money option always has some Intrinsic value and Time value.

So, the In-the-money put option would be any strike price above Rs8300 (spot price) of the stock. And NIFTY FEB 8400 PUT would be the example of In-the-money put.

An At-the-money put option is described as a put option whose strike price is approximately equal to the spot price of the underlying assets. From the following example, NIFTY FEB 8300 PUT would be an example of At-the-money put option, where the spot price is Rs. 8300. An At-the-money put option doesn’t have any Intrinsic value, it consists of only time value.

An Out-the-money put option is described as a put option whose strike price is lower than the spot price of the underlying. Thus, an Out-the-money put option’s entire premium consists of Time value / Extrinsic value and it doesn’t have any Intrinsic value. So, NIFTY FEB 8200 PUT would be an example of Out-the-money put option.

NIFTY ((PUT OPTION) | Expiry: 23FEB2017 | SPOT PRICE: 8300 | ||
---|---|---|---|---|

STRIKE PRICE | STATUS | OPTION PRICE | INTRINSIC VALUE | TIME VALUE |

8000 | OTM | 30 | 0 | 30 |

8100 | OTM | 40 | 0 | 40 |

8200 | OTM | 60 | 0 | 60 |

8300 | ATM | 80 | 0 | 80 |

8400 | OTM | 160 | 100 | 60 |

8500 | OTM | 240 | 200 | 40 |

8600 | OTM | 330 | 300 | 30 |

**Why to Choose Mutual Funds Instead of Directly Investing Into Equities?**

Whether to invest in equities or mutual funds is a question that has plagued every investor. As someone who needs the best value for his/her investment should you invest in equity directly or via mutual funds?

Let’s start by first understanding what these two terms ‘equities’ and ‘mutual funds’ stand for-

**Equities**- Equities generally represent ownership of a company. If you own any equity in a company, you are a part owner of the said company (depending on how much equity you own).

**Mutual Funds** – It is an investment scheme which is professionally managed by an asset management company. It pools together the resources of a group of people and invests their money in equities, debentures, bonds and other securities.

**Why choose mutual funds over equities?**

For people who’ve never invested in either stocks or mutual funds, it is hard to know which is better and where to start. Broadly speaking, if you are a novice investor, mutual funds are not only less risky but also way easier to manage. Here are some ways in which investing in mutual funds is beneficial as opposed to investing in equities -

**Diversification**

Mutual funds provide more diversification as compared to an individual equity stock. When you invest in equity, you are investing in a single company which has its inherent risk. For example, if you invest Rs.20,000 in buying equities of one company, you could face a total loss if that particular company performs poorly in the market.

If you invest the same amount in mutual funds, it will be invested in different kinds of stocks and financial instruments, high-risk and low-risk both, so you might not face total loss even if one company does poorly.

**Scale of Investment and Lower Costs**

For an individual investor buying and selling stocks is a difficult task due to its high price. Thus, any gains made from stock appreciation are nullified if the overall trading costs are considered. Comparatively with mutual funds, as the money is pooled from a large number of investors, the cost per individual is lowered.

Another advantage of mutual funds is that you don’t need to invest large sums of money. Buying equities for a profitable venture needs huge amounts of money, a minimum of few lakhs. With mutual funds, you can start with Rs.1000 and earn profits on that as well.

**Convenience**

Keeping an eye on the markets everyday is a time-consuming business, especially if you are investing as a side gig. There are people who spend their lives studying the market and still end up sustaining heavy losses. Though investing in mutual funds does not guarantee high returns, it is stress-free and needs less work as compared to investing in equities.

**To sum it up**

It is important to remember that mutual funds have their own disadvantages as well. Thus, as with any financial decision, educating yourself and understanding the suitability of all the available options is the ideal way to invest.

An option premium consists of components, namely Intrinsic value and the Time value.

** Option premium = Intrinsic value + Time value **

ITM | ATM | OTM | |
---|---|---|---|

INTRINSIC VALUE | YES | NO | NO |

TIME VALUE | YES | YES | YES |

** Intrinsic value: ** The Intrinsic value is the amount by which the strike price of an option is In-the-money. The Intrinsic value for call option will be the underlying stock’s price minus its call strike price, whereas for the put option, it is the put strike price minus the underlying stock price. ATM and OTM options don’t have any Intrinsic value.

** Time Value: ** The Time value is also referred to as the Extrinsic value. It is the excess amount over and above an option’s intrinsic value. Time value decreases to zero over time as the option moves closer to expiration. This circumstance is called as Time decay. Options premium depends on time to expiration. Options that would expire after a longer duration of time would be more expensive as compared to those expiring in the current month as the former would have more time value left, increasing the probability of trade going in your favour.

An In-the-money call option is described as a call option whose strike price is less than the spot price of the underlying assets.

In the following example of Nifty, the In-the-money call option would be any strike price below Rs.8300 (spot price) of the stock (i.e. Strike price< Spot price).So, NIFTY FEB 8200 CALL would be the example of In-the-money call. An In-the-money option always has some Intrinsic value and Time value.

An At-the-money call option is described as a call option whose strike price is approximately equal to spot price of the underlying assets (i.e. Strike price=Spot price). Hence, NIFTY FEB 8300 CALL would be an example of At-the-money call option, where the spot price is Rs 8300. An At-the-money call option doesn’t have any Intrinsic value and it consists of only time value.

An Out-the-money call option is described as a call option whose strike price is higher than the spot price of the underlying assets(i.e. Strike price> Spot price).Thus, an Out-the-money call option’s entire premium consists of Time value/Extrinsic value and it doesn’t have any Intrinsic value. So, NIFTY FEB 8400 CALL would be an example of Out-the-money call option, where the spot price is Rs 8300.

NIFTY (CALL OPTION) | Expiry: 23FEB2017 | SPOT PRICE: 8300 | ||
---|---|---|---|---|

STRIKE PRICE | STATUS | OPTION PRICE | INTRINSIC VALUE | TIME VALUE |

8000 | ITM | 330 | 300 | 30 |

8100 | ITM | 240 | 200 | 40 |

8200 | ITM | 160 | 100 | 60 |

8300 | ATM | 80 | 0 | 80 |

8400 | OTM | 60 | 0 | 60 |

8500 | OTM | 40 | 0 | 40 |

8600 | OTM | 30 | 0 | 30 |

An In-the-money put option is described as a put option whose strike price is higher than the current price of the underlying. An In-the-money option always has some Intrinsic value and Time value.

So, the In-the-money put option would be any strike price above Rs8300 (spot price) of the stock. And NIFTY FEB 8400 PUT would be the example of In-the-money put.

An At-the-money put option is described as a put option whose strike price is approximately equal to the spot price of the underlying assets. From the following example, NIFTY FEB 8300 PUT would be an example of At-the-money put option, where the spot price is Rs. 8300. An At-the-money put option doesn’t have any Intrinsic value, it consists of only time value.

An Out-the-money put option is described as a put option whose strike price is lower than the spot price of the underlying. Thus, an Out-the-money put option’s entire premium consists of Time value / Extrinsic value and it doesn’t have any Intrinsic value. So, NIFTY FEB 8200 PUT would be an example of Out-the-money put option.

NIFTY ((PUT OPTION) | Expiry: 23FEB2017 | SPOT PRICE: 8300 | ||
---|---|---|---|---|

STRIKE PRICE | STATUS | OPTION PRICE | INTRINSIC VALUE | TIME VALUE |

8000 | OTM | 30 | 0 | 30 |

8100 | OTM | 40 | 0 | 40 |

8200 | OTM | 60 | 0 | 60 |

8300 | ATM | 80 | 0 | 80 |

8400 | OTM | 160 | 100 | 60 |

8500 | OTM | 240 | 200 | 40 |

8600 | OTM | 330 | 300 | 30 |

## Patidar Samaj

- 2 hrs agoThis article claims RJio was given a "Backdoor Entry" into the 4G Based Voice Routing. The peculiar aspect is without the Voice License, Rjio would have been a mere ISP. With the license, it is now a holistic communications service provider, with ability to exponentially scale the bouquet of products. The events indicate it was meticulously planned way before the auctions because the auctions were clear on the agenda: 4G for internet only.