Module 5 Options Theory for Professional Trading

Chapter 8

Moneyness of an Option Contract


8.1 – Intrinsic Value

The moneyness of an option contract is a classification method wherein each option (strike) gets classified as either – In the money (ITM), At the money (ATM), or Out of the money (OTM) option. This classification helps the trader to decide which strike to trade, given a particular circumstance in the market. However before we get into the details, I guess it makes sense to look through the concept of intrinsic value again.

The intrinsic value of an option is the money the option buyer makes from an options contract provided he has the right to exercise that option on the given day. Intrinsic Value is always a positive value and can never go below 0. Consider this example –

Underlying CNX Nifty
Spot Value 8070
Option strike 8050
Option Type Call Option (CE)
Days to expiry 15
Position Long

Given this, assume you bought the 8050CE and instead of waiting for 15 days to expiry you had the right to exercise the option today.  Now my question to you is – How much money would you stand to make provided you exercised the contract today?

Do remember when you exercise a long option, the money you make is equivalent to the intrinsic value of an option minus the premium paid. Hence to answer the above question we need to calculate the intrinsic value of an option, for which we need to pull up the call option intrinsic value formula from Chapter 3.

Here is the formula –

Intrinsic Value of a Call option = Spot Price – Strike Price

Let us plug in the values

= 8070 – 8050

= 20

So, if you were to exercise this option today, you are entitled to make 20 points (ignoring the premium paid).

Here is a table which calculates the intrinsic value for various options strike (these are just random values that I have used to drive across the concept) –

Option Type Strike Spot Formula Intrinsic Value Remarks
Long Call 280 310 Spot Price – Strike Price 310 – 280 = 30
Long Put 1040 980 Strike Price – Spot Price 1040 -980 = 60
Long Call 920 918 Spot Price – Strike Price 918 – 920 = 0 Since IV cannot be -ve
Long Put 80 88 Strike Price – Spot Price 80 – 88 = 0 Since IV cannot be -ve

With this, I hope you are clear about the intrinsic value calculation for a given option strike. Let me summarize a few important points –

  1. Intrinsic value of an option is the amount of money you would make if you were to exercise the option contract
  2. Intrinsic value of an options contract can never be negative. It can be either zero or a positive number
  3. Call option Intrinsic value = Spot Price – Strike Price
  4. Put option Intrinsic value = Strike Price – Spot price

Before we wrap up this discussion, here is a question for you – Why do you think the intrinsic value cannot be a negative value?

To answer this, let us pick an example from the above table – Strike is 920, spot is 918, and option type is long call. Let us assume the premium for the 920 Call option is Rs.15.


  1. If you were to exercise this option, what do you get?
    1. Clearly we get the intrinsic value.
  2. How much is the intrinsic value?
    1. Intrinsic Value = 918 – 920 = -2
  3. The formula suggests we get ‘– Rs.2’. What does this mean?
    1. This means Rs.2 is going from our pocket
  4. Let us believe this is true for a moment, what will be the total loss?
    1. 15 + 2 = Rs.17/-
  5. But we know the maximum loss for a call option buyer is limited to the extent of premium one pays, in this case it will be Rs.15/-
    1. However if we include a negative intrinsic value this property of option payoff is not obeyed (Rs.17/- loss as opposed to Rs.15/-). Hence in order to maintain the non linear property of option payoff, the Intrinsic value can never be negative
  6. You can apply the same logic to the put option intrinsic value calculation

Hopefully this should give you some insights into why the intrinsic value of an option can never go negative.

8.2 – Moneyness of a Call option

With our discussions on the intrinsic value of an option, the concept of moneyness should be quite easy to comprehend. Moneyness of an option is a classification method which classifies each option strike based on how much money a trader is likely to make if he were to exercise his option contract today. There are 3 broad classifications –

  1. In the Money (ITM)
  2. At the Money (ATM)
  3. Out of the Money (OTM)

And for all practical purposes I guess it is best to further classify these as –

  1. Deep In the money
  2. In the Money (ITM)
  3. At the Money (ATM)
  4. Out of the Money (OTM)
  5. Deep Out of the Money

Understanding these option strike classification is very easy. All you need to do is figure out the intrinsic value. If the intrinsic value is a non zero number, then the option strike is considered ‘In the money’. If the intrinsic value is a zero the option strike is called ‘Out of the money’. The strike which is closest to the Spot price is called ‘At the money’.


Let us take up an example to understand this well. As of today (7th May 2015) the value of Nifty is at 8060, keeping this in perspective I’ve take the snapshot of all the available strike prices (the same is highlighted within a blue box). The objective is to classify each of these strikes as ITM, ATM, or OTM. We will discuss the ‘Deep ITM’ and ‘Deep OTM’ later.

Image 1 _Call Option

As you can notice from the image above, the available strike prices trade starts from 7100 all the way upto 8700.

We will first identify ‘At the Money Option (ATM)’ as this is the easiest to deal with.

From the definition of ATM option that we posted earlier we know, ATM option is that option strike which is closest to the spot price. Considering the spot is at 8060, the closest strike is probably 8050. If there was 8060 strike, then clearly 8060 would be the ATM option. But in the absence of 8060 strike the next closest strike becomes ATM. Hence we classify 8050 as, the ATM option.

Having established the ATM option (8050), we will proceed to identify ITM and OTM options. In order to do this we will pick few strikes and calculate the intrinsic value.

  1. 7100
  2. 7500
  3. 8050
  4. 8100
  5. 8300

Do remember the spot price is 8060, keeping this in perspective the intrinsic value for the strikes above would be –

@ 7100

Intrinsic Value = 8060 – 7100

= 960

Non zero value, hence the strike should be In the Money (ITM) option


Intrinsic Value = 8060 – 7500

= 560

Non zero value, hence the strike should be In the Money (ITM) option


We know this is the ATM option as 8050 strike is closest to the spot price of 8060. So we will not bother to calculate its intrinsic value.

@ 8100

Intrinsic Value = 8060 – 8100

= – 40

Negative intrinsic value, therefore the intrinsic value is 0. Since the intrinsic value is 0, the strike is Out of the Money (OTM).

@ 8300

Intrinsic Value = 8060 – 8300

= – 240

Negative intrinsic value, therefore the intrinsic value is 0. Since the intrinsic value is 0, the strike is Out of the Money (OTM).

You may have already sensed the generalizations (for call options) that exists here, however allow me to restate the same again

  1. All option strikes that are higher than the ATM strike are considered OTM
  2. All option strikes that are below the ATM strike are considered ITM

In fact I would suggest you relook at the snapshot we just posted –

Image 2 _Call Option again

NSE presents ITM options with a pale yellow background and all OTM options have a regular white background. Now let us look at 2 ITM options – 7500 and 8000. The intrinsic value works out to be 560 and 60 respectively (considering the spot is at 8060). Higher the intrinsic value, deeper the moneyness of the option. Therefore 7500 strike is considered as ‘Deep In the Money’ option and 8000 as just ‘In the money’ option.

I would encourage you to observe the premiums for all these strike prices (highlighted in green box). Do you sense a pattern here? The premium decreases as you traverse from ‘Deep ITM’ option to ‘Deep OTM option’. In other words ITM options are always more expensive compared to OTM options.

8.3 – Moneyness of a Put option

Let us run through the same exercise to find out how strikes are classified as ITM and OTM for Put options. Here is the snapshot of various strikes available for a Put option. The strike prices on the left are highlighted in a blue box. Do note at the time of taking the snap shot (8th May 2015) Nifty’s spot value is 8202.

Image 3_Put Option Strikes

As you can see there are many strike prices available right from 7100 to 8700. We will first classify the ATM option and then proceed to identify ITM and OTM option. Since the spot is at 8202, the nearest strike to spot should be the ATM option. As we can see from the snapshot above there is a strike at 8200 which is trading at Rs.131.35/-. This obviously becomes the ATM option.

We will now pick a few strikes above and below the ATM and figure out ITM and OTM options. Let us go with the following strikes and evaluate their respective intrinsic value (also called the moneyness) –

  1. 7500
  2. 8000
  3. 8200
  4. 8300
  5. 8500

@ 7500

We know the intrinsic value of put option can be calculated as = Strike – Spot

Intrinsic Value = 7500 – 8200

= – 700

Negative intrinsic value, therefore the option is OTM

@ 8000

Intrinsic Value = 8000 – 8200

= – 200

Negative intrinsic value, therefore the option is OTM


8200 is already classified as ATM option, hence we will skip this and move ahead.

@ 8300

Intrinsic Value = 8300 – 8200

= +100

Positive intrinsic value, therefore the option is ITM

@ 8500

Intrinsic Value = 8500 – 8200

= +300

Positive intrinsic value, therefore the option is ITM

Hence, an easy generalization for Put options are –

  1. All strikes higher than ATM options are considered ITM
  2. All strikes lower than ATM options are considered OTM

And as you can see from the snapshot, the premiums for ITM options are much higher than the premiums for the OTM options.  

I hope you have got a clear understanding of how option strikes are classified based on their moneyness. However you may still be wondering about the need to classify options based on their moneyness. Well the answer to this lies in ‘Option Greeks’ again. As you briefly know by now, Option Greeks are the market forces which act upon options strikes and therefore affect the premium associated with these strikes. So a certain market force will have a certain effect on ITM option while at the same time it will have a different effect on an OTM option. Hence classifying the option strikes will help us in understanding the Option Greeks and their impact on the premiums better.

8.4 – The Option Chain

The Option chain is a common feature on most of the exchanges and trading platforms. The option chain is a ready reckoner of sorts that helps you identify all the strikes that are available for a particular underlying and also classifies the strikes based on their moneyness. Besides, the option chain also provides information such as the premium price (LTP), bid –ask price, volumes, open interest etc for each of the option strikes.

Have a look at the option chain of Ashoka Leyland Limited as published on NSE –

Image 4_Option Chain

Few observations to help you understand the option chain better –

  1. The underlying spot value is at Rs.68.7/- (highlighted in blue)
  2. The Call options are on to the left side of the option chain
  3. The Put options are on to the right side of the option chain
  4. The strikes are stacked on an increasing order in the center of the option chain
  5. Considering the spot at Rs.68.7, the closest strike is 67.5, hence that would be an ATM option (highlighted in yellow)
  6. For Call options – all option strikes lower than ATM options are ITM option, hence they have a pale yellow background
  7. For Call options – all option strikes higher than ATM options are OTM options, hence they have a white background
  8. For Put Options – all option strikes higher than ATM are ITM options, hence they have a pale yellow background
  9. For Put Options – all option strikes lower than ATM are OTM options, hence they have a white background
  10. The pale yellow and white background from NSE is just a segregation method to bifurcate the ITM and OTM options. The color scheme is not a standard convention.

Here is the link to check the option chain for Nifty Options.

8.4 – The way forward

Having understood the basics of the call and put options both from the buyers and sellers perspective and also having understood the concept of ITM, OTM, and ATM I suppose we are all set to dwell deeper into options.

The next couple of chapters will be dedicated to understand Option Greeks and the kind of impact they have on option premiums. Based on the Option Greeks impact on the premiums, we will figure out a way to select the best possible strike to trade for a given circumstance in the market.  Further we will also understand how options are priced by briefly running through the ‘Black & Scholes Option Pricing Formula’. The ‘Black & Scholes Option Pricing Formula’ will help us understand things like – Why Nifty 8200 PE is trading at 131 and not 152 or 102!

I hope you are as excited to learn about all these topics as we are to write about the same. So please stay tuned.

Onwards to Option Greeks now!

Key takeaways from this chapter

  1. The intrinsic value of an option is equivalent to the value of money the option buyer makes provided if he were to exercise the contract
  2. Intrinsic Value of an option cannot be negative, it is a non zero positive value
  3. Intrinsic value of call option = Spot Price – Strike Price
  4. Intrinsic value of put option = Strike Price – Spot Price
  5. Any option that has an intrinsic value is classified as ‘In the Money’ (ITM) option
  6. Any option that does not have an intrinsic value is classified as ‘Out of the Money’ (OTM) option
  7. If the strike price is almost equal to spot price then the option is considered as ‘At the money’ (ATM) option
  8. All strikes lower than ATM are ITM options (for call options)
  9. All strikes higher than ATM are OTM options (for call options)
  10. All strikes higher than ATM are ITM options (for Put options)
  11. All strikes lower than ATM are OTM options (for Put options)
  12. When the intrinsic value is very high, it is called ‘Deep ITM’ option
  13. Likewise when the intrinsic value is the least, it is called ‘Deep OTM’ option
  14. The premiums for ITM options are always higher than the premiums for OTM option
  15. The Option chain is a quick visualization to understand which option strike is ITM, OTM, ATM (for both calls and puts) along with other information relevant to options.


  1. khyati verdhan says:

    Hi kartik,
    Thanks for new chapter. You have magical writing power which makes the learning so interesting and easy. I completely understood the concept of this chapter and very excited for next chapter.

  2. kieron says:

    Very excited for next chapter please update it as soon as possible

  3. khyati verdhan says:

    Hi kartik
    If I place an order to buy nifty8050CE at premium of 100 with a trailing stop loss of 100 points. After sometime premium is 120, can I modify my trailing stop loss to 80 points or 60 points or can I square off my position at current price

  4. ManojBaliyan says:

    Hi Karthik,
    Varsity is the great effort of you and Zerodha. I do not have words to appreciate, thanks a lot….

  5. keshav says:

    Sir, please try to upload atleast one chapter per week.

    • Karthik Rangappa says:

      We will try our best Keshav. In fact that is our aim as well..but sometime things get hectic and its not possible to upload. But nevertheless we will do our best. Thanks.

  6. iyengarnsv says:

    @ 8300

    Intrinsic Value = 8060 – 8300

    = – 260 (It should be -240)

  7. khyati verdhan says:

    Hi kartik,
    I have 50000 rs in my trading account. How many shares of nifty CE with strike price of 8200 and premium of 100 under bo & co order can I buy???

  8. NARSIMHA says:

    sir.when trading options which graph should we look into,is it nifty ce,pe we r in or spot.bcoz as chart trader iam confused which chart to follow, as and every strikewill hav diff setup,trading cycolegy greeks lot more,got it

    • Karthik Rangappa says:

      For trading options please look into the charts of the spot market and not really the chart of the Options.

      • NARSIMHA says:

        sir,ok should we look spot r fut nifty &when looking nifty charts how can we rely as it consists of 50 stocks&each chart will tell differently how can we attribute to spot nifty,ce,pe clarify detailly

      • jOSE says:

        cannot agree. it is important to keep an eye on spot while watching the option chart in 3minute frame and also watch the support and resistances in 3mntf. during. opening moves. option chart will respond. immediately to changes in underlying. after 10:15a.m. sluggish response, until lunch time or two thirty when actual operational intension of the day is displayed. then. another bout of responsivenes near close at 3:10. or. thereabout. by the way elliott waves can be seen in option charts


    • Narasimha says:

      Sir,I don’t think nifty spot will be traded so how can we get the volume correct me if I’m wrong

      • Karthik Rangappa says:

        The volume of Nifty spot is cumulative volumes of all the 50 stocks. Check this –

        • NARSIMHA says:

          sir,ok but what about in pi i hav double clicked but couldnt help,and what about theoratical option price like in nest plus u said its comming soon in pi,when can we expect,it will be game changer

          • Karthik Rangappa says:

            Sometime soon Narsimha, I’m not in any position to specify a timeline on this matter.

          • NARSIMHA says:

            sir,i asked about volume of nifty spot which iam not getting even after double clicking&the link u provided is for eod what for iday&tick/tick

          • Karthik Rangappa says:

            For intraday it may not be possible Narsimha. I will get back to you on this soon, meanwhile you can certainly use the Nifty futures chart.

  9. Vidhyalakshmi says:

    Hi Karthik, the bid-ask spread for the Nifty is quite close; and when I square off an order at market price, there are no major surprises. But with the Bank Nifty, there is a huge difference between the LTP and the market price. So while trading larger volumes, is it safer to trade Nifty?

    • Karthik Rangappa says:

      Well the bid – ask spread for both Nifty and BankNifty are quite the same 🙂

      Do this –

      1) Take the difference between the bid and ask (this is called the spread)
      2) Divide the spread by the average of Bid and Ask
      3) Express this as a %

      If you do this you will realize the % is almost the same (ard 0.015%).

      The spread is tight when liquidity is abundant. In simpler words – when there are more people trading a particular contract liquidity improves and therefore the spreads get better (it gets tighter). Tighter spreads imply lesser damage when you place market orders (lesser surprise). You may also want to read about ‘Impact Cost’ here – section 9.2

      • Vidhyalakshmi says:

        Karthik, I was asking about the spread in absolute terms (not percentage). With Bank Nifty options, I see a difference of over 10 rupees between the bid price and the ask price onscreen. A few days ago, before I squared off my (Bank Nifty options) positions, the screen showed a decent profit (which was calculated on the LTP I suppose); but when I hit the button to square off, I ended up with a loss 🙁 This hasn’t happened when I’ve traded Nifty options.

  10. Chetan says:

    Hi Karthik, Hats off buddy… Amazingly good chapters… Work highly appreciated Sir 🙂 Cheers

  11. khyati verdhan says:

    Thanks a lot for this information.
    Even 700 shares of nifty CE/PE option per trade is quite more than future market.
    Also one thing that I want to ask is – approximately nifty daily change is of 100 points (day’s high- day’s low) ,is the same change is observed in the premium’s of ATM strike price of nifty options or other stock options like idea cellular????

    • Karthik Rangappa says:

      The lot of 25 is fixed for both futures and options. I think 700 came about because one of the comments posted earlier. Also, it may not be safe to assume 100 point daily moment in Nifty. The change in premium based on the change is underlying is captured by delta…which is the focus in chapter 9.

    • jOSE says:


  12. keshav says:

    When will u upload next chapter?

    • Karthik Rangappa says:

      Sorry for the delay, but we should have it up over the next 2 days max. Thanks for your patience.

  13. Keerthan says:

    Hi Karthik, as always an excellent job in explaining concepts of options and futures. I have a question which is probably related to next chapter but it would be great if you could answer them. When calculating the delta for any option, what values of historical volatility do we take? Where can I get this data from?
    The other question is a few days ago put option volatility(around 24%) was higher than average volatilty (18.23% ,this data I got from one of the option tools I use) and the premium of put options eroded quickly, and since yesterday the put option volatility has come down near the average range but the call option volatility has dropped to around 13% while average and put volatilities are around 18%. Call option premiums decayed quickly. So can we generalise this into saying when Average volatility>Call volatility ,calls are being written and it may be the right time for me to write calls whereas when Put volatility is greater than average volatility put options are being written and perhaps we can write some too? I hope you understand my question. Again the details of the volatility I got from the option tool I use.

    • Karthik Rangappa says:

      Which options tool do you use Keerthan?

      Delta can be calculated using a simple Black & Scholes option calculator. You don’t really need historical volatility for this. Also, historical volatility can be calculated very easily – I will explain the same in chapter 11 or 12 of this module.

      With volatility % like 18% and 24% you must be referring to bank Nifty (or some other Index) if I’m not wrong. Anyway, whenever current volatility > Average volatility …and you expect the volatility to drop should look at option writing opportunities and thereby collecting the premiums. Likewise whenever current volatility < Average volatility ...and you expect the volatility to should look at option buying opportunities. This is because the option premium increases/decreases with increase/decrease in volatility. Also, dont mix up call and put volatility. Treat them separate and clutter free for a clear understanding. Of course more on this topic in the subsequent chapters.

      • Keerthan says:

        Karthik, I use an excel sheet which was given to me by a friend(custom made) where it asks for Historical Volatility to calculate the Greeks and Theoretical option prices( I guess it is Black Scholes Model).
        For average volatility I use data from FOVOLT.csv files from NSE. When I meant “PE Volatility” and “CE Volatility” it is the average values of the top 5- 6 PE.CE strikes .
        Anyway in your explanation what do you mean by “current volatility” and “Average volatility”? I mean, what values are we using here? Also can you let me know where does India VIX fit in all these?
        Thanks for your help!! You are doing a wonderful job!!

        • Karthik Rangappa says:

          Current Volatility is the volatility in the market as of now while the average volatility is historical average volatility. This can be a bit confusing now, but we will discuss these in detail over the next few chapters…so you should have greater clarity then.

  14. kay kay says:

    As we know from previous chapter that an option can’t be exercised before expery date. Why do you mention to exercise it before expery date in this chapter.
    If one can exercise before expery then
    What will happen if I write an option which is in the money and someone exercised it? Profit or loss

    • Karthik Rangappa says:

      It was a deliberate statement, an assumption to drive the point across – here is what I’ve mentioned

      “Given this, assume you bought the 8050CE and instead of waiting for 15 days to expiry you had the right to exercise the option today. Now my question to you is – How much money would you stand to make provided you exercised the contract today? ”

      So in reality this does not happen in Indian markets as all options are European in nature.

  15. Saurabh Garg says:

    Hi Karthik, what is the difference between settle price and closing price?? e.g. on 15 July BHel 180CE has a closing price of 2.90 and settle price of 11.40. (Expiry 27 august). Also, what CE an CA in call options??

  16. priya says:

    Hi Karthik,
    a small and a silly doubt.
    for trading equity, we see spot price charts, for futures we have particular futures chart. On these two we apply TA and predict a direction for the market movement. For options, I read in few places, we should not apply TA, then are we deciding the direction by observing the primary or intermediate markets or news is it based or just the instincts? To trade options, I understand from your writings, options greeks will help us select a proper strike rate after which we’l be benefitted. But how to select bullish or bearish firmly???
    thanks in advance.

    • jOSE says:


  17. priya says:

    Hi Karthik,
    one silly doubt, for spot and futures trading, seeing the respective charts we apply TA to find some candle stick pattern and predict market direction. I have read in few places, for options we should not apply TA. From your writings I understand options greeks will help us select the strike rate properly, hence we can be profited. but my doubt is, how will we select call or put, bullish or bearsish? by observing primary or intermediate market direction? news or instincts? very basic, after too much of reading I am confused. thanks

  18. priya says:

    thanks Karthik,
    just for reconfirmation, I can use the checklist which you gave in TA module(mainly a candliestick pattern) and go long or short in options market??

  19. Darshan says:

    Hello Karthik,

    Your efforts in explaining the nitty gritty of each and every concept is highly appreciated that to with example. For instance till today I was only knowing that Intrinsic value of options cannot be -ve.. But why it can’t be -ve is what I came to know from this chapter. You and your team are doing awesome job with VARSITY knowledge sharing. Thanks

    Please continue with the good work.

    • Karthik Rangappa says:

      Darshan, thank you so much for the kind words and encouragement. Please do stay tuned for more quality content on Zerodha Varsity.

  20. ShreyaDR says:

    what role intrinsic value plays in deciding premium price of an option? why above ashok leyland example show IV 45.72 for the strike price 67.50 for the spot price 68.70. it should be 68.70-67.50=1.20. am i correct?

    • Karthik Rangappa says:

      Shreya – Option Premium can be split as Time value + Intrinsic value….so clearly intrinsic value plays an important role. The IV you are referring to in the option chain stands for implied volatility and not intrinsic value 🙂

  21. ShreyaDR says:

    Ops! What does it mean by implied volatility? how it behaves in context with premium? and why( we could make out higher the IV, lower was the premium and vice versa)?

  22. madhu nair says:

    Hi Karthik, based on the result expectations of HPCL i had gone long by buying a far OTM CE 1100 option.the stock then was at 950. now, the results were fantastic but, the stock corrected as if there is no tomorrow. the delta of the option was 0.09 and i was expecting the stock to move by 50 points . this would give me a leg up of 4.5 points as far as the premium was concerned( 0.09 * 50). i brought the call at 4 and now its less than 1. my question is with almost all stocks the price does go up after a favorable result. here though it was a good result the stock fell. i have attached the chart for you, can you point out what could the reasons be for such a fall? thanks.

    • Karthik Rangappa says:

      Madhu – This is a very typical reaction. If the results are generally anticipated to be good, then the stock runs up before the result announcement in the backdrop of the announcement. Once the announcement is made people book profits and liquidate their positions. However if the results are expected to be bad or avergae but the company surprises with good set of numbers…then the stock usually tends to rally.

  23. OptionTrader says:

    HI Karthik,

    Firstly Thanks to Zerodha in general and a big thanks to you in specific for making things as simple as possible. 
    I am still learning dynamics of options trading. Can you please take look at my below trade which went very bad. I also know many would have come across such situation.

    1. I had bought PUT(15 Rs) and CALL(19Rs) both options as a hedge and I knew there would be one side move on 18th Sep post fed outcome.
    Then opening was as expected on 18th Sep Nifty was at 120+, then I see both put and call prices nose diving(PUT fell by 82% and CALL fell by 42%). What happened here?
    2. I know it’s out of the money options and close to expiry. I have noticed in similar situations when Nifty opens 120+ even out of the money CALL option would jump by 200%. correct? what happens here?
    3. It was so pathetic, So how do we have some idea of such situations a day prior so we could exit at least. What metrics would help – volumes, open interest, etc? looking forward to your reply. Thanks.

    • Karthik Rangappa says:

      This is quite common Suraj. Whenever an even is lined up, the volatility shoots up, therby driving the option premiums (for both calls and puts) very high. As soon as event is over the premiums drop since the volatility drops. Add to this the fact that expiry is close…the OTM options tend to fall even more. I would suggest you read up the chapter on vega to appreciate this better.

  24. aehsan4004 says:



    2) question regarding standard tick-size of an option ? the buy-sell difference between certain CE are too high like at the time of closing of 8450 CE ( market sell = 3.35 & market buy = 4.25 ) …. kindly explain this .

    thank you

    • Karthik Rangappa says:

      1) Can you share the data, will be much easier for me to go through the details.
      2) This is because of liquidity. OTM options are less liquid hence the bid ask spread is wider. Higher the liquidity in the contract, lower is the bid ask spread.

  25. aehsan4004 says:

    1) sir , i did not take the screen shot but i shall try to make same study today as well . but did u get my point ? surprisingly such was not the case with nifty JAN16 options ….. in here all out of the money , in the money options stayed bullish same as the underlying .

    2) in case of OTM options how to benefit from (HIGH BID-ASK SPREAD) when buying & how to benefit / safeguard / get a fair selling value when we decide to sell ?

  26. aehsan4004 says:

    sir attached example of NIFTY NOV15 CE prices today .

    NIFTY NOV 15 was bearish today 10-nov-15 till 2:15 pm …… prices till that shows certain CE are bearish in line with underlying …… while certain are bullish ….. kindly guide us in detail

  27. Manoj Acharya says:

    Hi ,
    I have been going through the Varsity modules and would like to appreciate the kind of efforts must have put for its creation and the way it has been presented. People who have no exposure or knowledge of Derivatives would surely benefit from it and would go a long way towards making them good traders.
    Hats off Zerodha team. God bless you all.

  28. Hari says:

    Hi Karthik bro,
    One question – How can I get Nifty 28Jan2016 chart in kite(i.e. with premium in Y-axis and date/time in x-axis). I mean what do I search in the search box to get it in the “market watch”.

    Thank You for this wonderful content and helping us out 🙂

  29. Deepak says:

    Hi Karthik Sir,

    small doubt (if) i bought NIFTY16FEB7500CE @79, 2 lots (lot size 75) on 9:30am and sell it on 2:00pm
    need cash – 79*150 = 11850
    if yes than profit is 125*150=18750-11850=6900 ??
    am i correct or not waiting for reply Thanks in advance

  30. sushil says:

    Hello Karthik,

    First of all let me thank you for this enlightenment, you know how to write stuff. Putting Bollywood analogy with simplified version of stock market makes these articles great. The more I read the more curious I become.

    I have loads of question I’ll try to sum up my understanding my making up story below. Please correct me if I understood incorrectly.

    So basically there are 4 types of trades in options.
    Call, Put, Short Call, Short Put.

    Let’s take example of Ashok Leyland. Currently Ashok Leyland is trading at 90 in call option with premium of 2 INR. So if I buy Call current month option the break even would be 92? We expecting market is bullish here 
    But as I trader I want to earn back my premium so I will short the same Call 90 option of current month. So I will get my premium back. i.e. 2 INR. I will immediately close this short call option trade or I will wait till or below before touching to 92.
    So once I closed short call option now I have only call 90 option of Ashok Leyland. If the prize goes above 92 I will be in profit, if below 90 I will be in loss if it stays in between 90 to 92 I will be in break even.
    This should be my strategy in the bullish market. Same goes for Call with Call short if market is bearish.

    Please let me know if I am right? Please add up if it is possible to short call option immediately? I haven’t done real time option trading this is just reading about options & coming up with strategy to earn some profit. I want your insights as option trader for this strategy. Give me pros n cons if possible 🙂
    Another question I see no one asking is we have 3 expiry dates in the every option i.e. Current month, next month, & Far month. For this time we have 25th Feb 2016, 31st March 2016, & 28th April expiry.
    If I buy 31st march expiry same option in feb & if I get profit in same month i.e. feb, can I close this position in feb instead of waiting till march? Actually I didn’t get next month expiry logic.

    & the last one basically Options are zero sum game, so if I wanted to buy call option there has to be put option buyer, right? So what does it mean open interest? I can see in every option tradable stock.

    my implied understanding from options is that if there more people buying Call options then it means market expecting to go up & it should eventually goes up ( not necessarily) but I can say like this?

    I’m really sorry for bombarding with loads of questions but I will be very grateful if you able to answer those.

    Thanks in Advance.

    • Karthik Rangappa says:

      First of all, thanks for going through the content here and I’m glad you really liked it 🙂

      Now with your queries –

      1) Yes, if you pay Rs.2 as premium on 90 strike, then breakeven will be 92, and the outlook is bullish
      2)If you short the same call option, then your expectation is ‘flat to bearish’and your breakeven will be 88 (90-2)
      3) You can short a call option and close the position anytime you wish
      4) You cannot buy call and sell call of the same strike simultaneously as it would nullify your position
      5) You can buy March series option in Feb and close the same in Feb, there is no problem with the same.
      6) Suggest you read this to understand open interest –

  31. Arpan says:

    I read somewhere that selling options requires a margin amount but do they require margin in hedged positions ( I think , they are probably called covered positions) ?
    i.e In a contract like “Buying an At the Money Option and Selling Out of Money Option”

  32. Kankana Banerjee says:

    First of all thank you for such a beautiful real life explanation. It helped a lot in understanding the concept in real life. I have a question: Say, for a stock having same stock and strike price, a call option is priced higher than a put option having the same underlying. Why is the call option priced higher than the put? Thanks in advance

    • Karthik Rangappa says:

      Its hard to explain this in a comment, but please be aware this is because of ‘Put Call parity’, an equation which relates the prices of calls and puts.

  33. Nitin Desale says:

    If I bought nifty call option eg Nifty30June8400CE @ 100 rs one lot (25) . If I hold till expiry. At the expiry nifty at 8700 then can I exercise the option at the expiry.? is there any switch for exercise like square off..? how it works?
    And from above example how much profit I made..?

  34. Mrs. Shetty says:

    I have read 8 chapters of Options, and I can only say WOW, again understood the whole thing till now theorically. I had seen as many videos and gone thru so many you tube videos on OPTIONS.. so I knew something but it never gave me a full understaning of IV/moneyness , prem for call and put and why is its need, spot prices vs strike prices. All these were greeks to me.
    But hats off to you, you have been teaching us the ABCD of the OPTIONS which is priceless. I was contemplating for going to the classes many a times, wh wud have cost me a great deal, but what cud I have learnt in 2/3 days with more than 20/30 students in a batch.
    Here I will read and re-read again and again if I have not understood some jargons of the trading.
    Thanks once again. I have no questions since I have NEVER traded options on my own. I hope I will b able to comprehend the rest of the chapters too. TOO GOOD.

  35. venkat says:

    What is expiry time on expiry day ? is the value of option based on index/stock at 3 PM on expiry day ??

  36. Ankit says:

    i have a small doubt in (8.1) IV
    if i remember correctly, from previous chapters, one should buy a call option when he is bullish about the underlying.
    But in the very first table of Underlying & CNX Nifty, where the spot price = 8070.
    Why one would buy 8050CE, if he is bullish about the underlying,
    i know i must have gone horribly wrong somewhere because no one else asked this question and i couldn’t figure it out myself, so just asking to correct me.

    • Ankit says:

      I think i got it, please correct me if i am wrong,
      The person would have bought the call option when spot price was below the strike price of 8050,
      his prediction was correct and now the spot price is moved to 8070, which is Rs.20 above the strike price and hence he will make Rs.20 out of it,(ignoring the premium paid) if he has to execute the contract.
      So this was the 2nd half of the story 🙂

    • Karthik Rangappa says:

      Well, you are still buying a call option. Its just that the moneyness of the option is different.

  37. seemapv says:

    Hi, as I have already admitted about the impressive nature of your wisdom, it can be more beneficial if you can make audio-visual (videos) series, as I am sure that the depth of “communication” would certainly surpass than just reading and more importantly a lot of mileage for varsity public!.., right? Kindly, do the needful… Best Regards!!!

  38. sandip021 says:

    Hi I’m sandip yadav , i recently open my acct with zerodha its vry good 4 Trader where re getting study material with support. My question is here if i bought bank nifty bought ce bought at [email protected] so how much premium i ve to pay here.

  39. 9SR says:

    I am new to NFO. Suppose I buy Nifty CE 9050 Strike Price. (Exp March), today morning @ 130. When I open the chart of the same, premium rose to 145 +. Then I square off the same contract @ 145. (Which means intraday) What is the effect on my capital. Thanks in advance.

    • Karthik Rangappa says:

      You make a profit of Rs.15 (i.e your sell price 145 – your buy price 130) times the lot size i.e 75


  40. Pranay Shah says:

    This page is very resourceful for someone like me who is a beginner. Every thing here is explained in a very subtle way. Kudos.
    Just noticed something improper on the content of this page.
    In the first section you were explaining why the intrinsic value cannot be negative. You took the example of 920 Call option and Spot price 918. Here’s my understanding, since you cannot exercise the option until the strike price is reached by the underlying and intrinsic value is the money that you will make if you were to exercise your right to buy today. In this case since the spot is below strike so you may never exercise your right to buy the underlying which mean you make zero money, therefore intrinsic is zero.

    • Karthik Rangappa says:

      Hi Pranay..thanks for the kind words.

      Your understanding is right. I read through the chapter again, I’m unable to find the inconsistency.

  41. Ananth Gopal says:

    Hello Karthik,

    You are super. Like many even i have gone through multiple videos, pdf files trying to understand options, but that was of very little help. Please clarify few questions. I hope these questions doesn’t sound silly.
    1. It has been said through the chapters about the Intrinsic value that it is “NON-NEGATIVE NUMBER”, like say as buyer i am exercising an option on the expire day irrespective of call or put on the last day of the expiry and if the odds are against my strike price then yes i would be losing my premium and then the statement “NON-NEGATIVE NUMBER”, holds good. However when i am Seller/writer of a call or put option, then on the expiry date if the odds are against my strike price then my Intrinsic value will be negative because i will be under huge loss, wouldn’t the statement “NON-NEGATIVE NUMBER” doesn’t hold good in this scenario.
    2. How should be the difference in the point from ATM for it to be called “Deep in the money” or “Deep out of the money”.
    3. I also see that there is a chapter in regards to Option strategies where there are 12 strategies have been explained which i will go through, however out of curiosity i would like to know if you could suggest few books on option strategies with more strategies. Hope i am not asking for more?

    Please Clarify. Thank you in advance.

  42. Mani says:

    Hi karthik,
    I am new to trading few days back i have opened AC and i was going through chapter 8
    Today my Fri was doing intraday in that he bought axis Apr 450pe at call 0.90 and sold at 1.80
    But today axis spot price 487.5 if my question is that if strike price is higher than the spot price it is on
    Otm right and he should be in loss but how come he gained profit i am getting confused
    Pls clarify me

    • Karthik Rangappa says:

      Firstly, welcome to Zerodha family 🙂

      Well, looks like he did an intra day trade and the price was favorable for him. Anyway, please do read this chapter, it will give you clarity on the ITM, OTM, and ATM options.

  43. Mani says:

    Hi karthik,
    What is the difference between intraday and other trading and how does it works : for example if iam trading in intraday suppose if bhel spot price 170.06 and my closest strike price is 160 or 180 ryt
    But my guy bought bhel at Apr CE 190 as a strike price and spot price was 170.06 how?
    My question is that we can choose any strike price in intraday pls clear my doubt

    • Karthik Rangappa says:

      I’d suggest you read this whole module to get a grip on strike selection. Selecting the right strike is a function of many different things 🙂

  44. Anish Chandrasekaran says:

    In OTM calls, if the underlying stock price increases but still below the strike price, then still premium is increasing. Why is it so? I think it should be purely because of IV.
    Eg.Federalbk CE May 115. In this case, the price is 111.85 but whenever the price rises to say 112.10, the premium also increases. Since even at 112.10, there is no intrinsic value, volatility should be the only factor affecting premium.Am I right?

    • Anish Chandrasekaran says:

      Volatility can increase irrespective of whether underlying stock price increases or decreases.Then why the premium goes down when underlying stock price goes down?

      • Karthik Rangappa says:

        Not necessary – Vol has the same effect on premiums irrespective of the stock going up or down.

        • Anish Chandrasekaran says:

          I think the premium goes down as spot goes down because of Delta effect. So delta only affects the time value of the premium in all types (OTM, ATM and ITM). In the case of ITMs, does delta affect the intrinsic value or the time value?

          • Karthik Rangappa says:

            Delta measures the impact of direction on the premiums, does not impact time value.

          • Anish Chandrasekaran says:

            As ITM options’ intrinsic value is 0, change in spot price has no effect in premium value? That cannot be true, assuming volatility and time to expiry is constant for the given day. Pls explain.

          • Karthik Rangappa says:

            It has, ITM options behave just like a futures contract. For every 1 point change in the spot, premium too changes by 1.

  45. Anish Chandrasekaran says:

    Sorry typo It should be OTM instead of ITM.
    Due to delta effect, change in spot price will result in very small change in premium value in OTMs. Does that mean this change will add to time value? This I am asking because intrinsic value is zero for OTMs and change in premium will only have to get added to the time value.

    • Karthik Rangappa says:

      Yes, thats because the OTM option has very low gamma 🙂

      Delta is dependent on gamma which is dependent on the spot.

  46. sumeet says:

    sir i have a doubt as follow as I am new in options trading:
    suppose I buy a call option of SAIL of strike price 70 ,lot qty is 12000 at 1rs premium and spot price at this time is 65rs
    after some days the spot price reaches 72rs and suppose premium also increases to 2rs.and now I exercise my right to sell this call option at this 72rs.
    so will my profit be 3rs*12000=36000(i.e. 1rs profit from premium and 2rs profit from difference of current spot price and strike price)
    plz correct me if I am wrong.

    • Karthik Rangappa says:

      To exercise, you need to hold the position to expiry. Yes, your profit would be Rs.2 minus the premium you have paid.

      • sumeet says:

        ok sir thanx ,so on expiry day do I need to square off my position for exercising the options ?? or should I do something else plzz clear my this doubt.

  47. rohit sharma says:

    I want to know how many index have weekly expiry contract?

  48. Shiva Pathre says:

    Sir, do u also provides nifty option tips to your customers. . .

  49. Roy David says:

    The banknifty is currently trading at Bank nifty Jun 23300 CE (june 1, 2017)
    I wanted to buy otm calls of Banknifty Aug 25000CE, but I am not able to buy the same on zerodha, can you please assist

    • Karthik Rangappa says:

      I’d suggest you type Banknifty Aug 25000 on the universal search area…you should be able to get the contract.

  50. samir says:

    Hello sir, I have 3 questions:-
    1) Recently I saw jul Nifty spot trading at 9530 & jul future at 9535 , while 9000 jul PE @ 15 & 10000 JUL CE @ 5. WHY 9000 JUL PUT PREMIUM IS HIGHER THAN 10000 JUL CALL ?



    • Karthik Rangappa says:

      1) Maybe market considers 9000 as a more likely event than 10000, hence PE is valued higher
      2) Supply demand
      3) Not sure if this is a common occurrence, anyway, if you spot – you can buy the next month and sell this month I guess 🙂

  51. Rao says:

    Hi. karthik.
    I have a query.
    What are the pros & cons of Selling (writing) Deep In The Money (ITM) Call and Put Bank Nifty weekly expiry options.? The premium received is more in ITM compared to OTM. Can I exercise / square off ITM options before expiry such as after 3, 4 days after selling if in profit.
    Thanks in advance.

    • Karthik Rangappa says:

      Selling deep ITM options is quite dangerous, I’d not suggest you venture into this, unless you know what you are dealing with.

  52. sam says:

    Hi Karthik,

    Thank you for creating these modules.They are extremely simple and comprehensive to learn the basics.

    While going through the chapter on moneyness of an option where you have dealt with moneyness of a call and put , the Intrinsic Value formula provided for call options is Spot price – Strike price while for Put options is Strike price – Spot price.

    However in the examples you have given in the moneyness of call and put the values of Intrinsic value are not reflecting that.

    Example in the moneyness of put option , the strike is 8200 and the spot price provided is 7500.The IV should be = Strike – Spot which is 8200-7500 = 700 while what has been calculated in the module is 7500 – 8200 = -700 (which is 0)

    Could you let me know if i am going in the wrong direction or is there an error from your end.

    Once again thanks for the modules.I look forward to reading all of them.


  53. Pankaj Chauhan says:

    banknifty [email protected] 23888 inthe money option [email protected] 2.35 how much stt will have to paid by me strike price was 23900

  54. punterdgr8 says:

    sir can we manually exercise an option anytime on the last day of expiry;say at 12:00 pm or we have to wait for the exchange to do it for us?

  55. Brahma kumar says:

    i have bought a bank nifty 25100 call on 1 aug at a premium of 180 and spot bank nifty is 25122, expiry is 3 aug. let us have a scenario where the spot bank nifty comes to 25150 on expiry. please give me what would happen to the call option on expiry

  56. anshul says:

    Sir I am only 10th pass can I learn call and put options please motivate me to gain knowledge and I am still struggling , and I left my study

  57. Bharath says:

    You are a excellent teacher for new comers like me. I have read only upto this module and will read the other modules soon, I am confused and have few doubts

    I buy a call option for a premium of Rs.5 on nth day, the contract expires on (n+10)th day. On (n+3)rd day i decide to square off because the premium is Rs.7. Is margin required to sell the call option i bought on nth day and willing to sell on (n+3)rd day?. When i square off do i become the call option seller and another person becomes the buyer or is it nullified? because the contract expiry day is only on (n+10)th day. If i square off on (n+3)rd day for a premium of Rs.7 and on (n+10)th day the premium rises even more lets say to Rs.10, What happens to the premium of Rs.5 i paid on nth day to the seller?

    • Karthik Rangappa says:

      Good to know you liked the content here, Bharath.

      1) No margin required.
      2) You are just squaring off an existing position, so no new position is created
      3) Since you are out of the market, this will not have a P&L impact for you.

      • Bharath says:

        Thank you Karthik,
        One more doubt. If the call option buyer squares off before contract expiry time, what happens to the contract and how the change in premium at expiry time affects the call option seller?

        • Karthik Rangappa says:

          The contract will continue to exist. It will cease to expire on the expiry day. If the option has an intrinsic value upon expiry, then both the seller and buyer will be settled based on the value of this option.

  58. Shashi says:

    if i buy a option for next month .
    Let’s take example .suppose, in aug month , i bought a option Cipla 600sepCE @ 20 rs ;cipla stock value is 574.
    and i take position for one moth . now if option value of Cipla 600sepCE @ ZERO on next day opening . so can i still hold that position ? or it will squareoff automatically ?
    or if once value got zero and again 10th of Sep value would be 30 , so can i sell that option @ 30 ? which bought on Aug.

  59. Sohan says:

    Hi Karthik,
    I am new to options trading and have recently got an acct opened with Zerodha and happy with that.
    In last one month I have burnt my hands losing about 30k in Fut. And have now come to options to burn it even more I think… ha ha. I am learning options now and your study mtrls, articles and the Q&A are really very helpful in understanding the concept really well and I really appreciate that. You guys are doing a fabulous job. Further, at present I want to do intraday trades in options as I am left very less cash in hand to waste or try my luck. I am confused by the statement that you need to hold the contract till expiry in order to exercise your right but at the same time you say that you can square off your position anytime if you are running in profit. Can you pl elaborate on this a little more plz. Can I buy or sell on the same day. And if I do so, am I trading the stock option or the premium? I know it might sound very stupid but then my understanding is this much only. Thanks for your help.

    • Karthik Rangappa says:

      Sohan, I’m sorry to hear about the losses incurred. Consider this as a fee paid to markets to learn valuable lessons 🙂

      There are two things that you can do when you buy options – either hold till expiry or square it off anytime you wish. If you choose to hold till expiry then you will get the intrinsic value of the option as your profit or loss. Intrinsic value is the difference between the spot and strike. However, if you choose to sell the option at any time before expiry, then your P&L will be the difference between the premium paid and received.


    I have noticed on expiry of bank nifty many times that the itm option is not traded on its intrinsic value.
    eg, 25022= spot
    25000ce LTP @₹7 only but it has to be 22 isn’t it, after expiry
    the question is what would a buyer get ₹7 or 22 after the expiry.

    • Karthik Rangappa says:

      Agreed, this is because of the STT implication. Out of the 22 odd points, at least 15 would go away as STT, hence the options kind of discounts this.

  61. MOHMMAD says:

    Hey Karthikbhai

    I want to know
    1) In Banknifty option – CE For intraday can we use Bracket Order(BO) ?
    2) If yes, what is margin I get ?
    3) BO is use consider premium amount
    ( Ex. If Premium is Rs. 5 and I have Rs. 1000 in demat and suppose margin I get for option – call is *20 then I can invest 20,000/- in option ? )
    4) Brokerage +STT + Stamp duty = in total trade value ( in % )
    ( Ex. Trade value 1000 then total expense rs 20 (I,e – 2.0% of trade value)
    Thanks in advance
    I am waiting for your guidance

    • 1. For Option Buying, Bracket Order is allowed only for Nifty
      2. No leverage is given for Banknifty option Buy orders.
      4. Brokerage for all Option orders is a flat Rs 20 regardless of the lot size (Option Premium value might be Rs 1000 but the Contract Value is Strike Price* Lot Size+ Premium* Lot Size)

      • MOHMMAD says:

        1. For Option Buying, Bracket Order is allowed only for Nifty -> Ok .. but margin given !!!!

        2. No leverage is given for Banknifty option Buy orders. – > Ok

        4. Brokerage for all Option orders is a flat Rs 20 regardless of the lot size (Option Premium value might be Rs 1000 but the Contract Value is Strike Price* Lot Size+ Premium* Lot Size) -> Is Rs. 20 all cost to trader or 20+STT+SD+etc ??

        • 1. For Nifty Options buying, leverage given is 1.4 times
          4. Brokerage is Rs 20, STT will be 0.05% on premium(charged while selling only) and Stamp Duty differs as per your state.
          You can calculate the charges in the Brokerage Calculator here

  62. ABESH GHOSH says:


    Thanks a lot for the knowledge but I still have some doubt. Would like to know if I’ll be in profit or not by buying Bnaknifty Dec CE 27000 for which the premium right now is 0.05. Suppose I buy this today and the premium goes up to 5 rupees by 15th Dec. But the bank nifty spot price could not Cross 27000 by 15th of Dec. In that case how will the profit calculation takes place?

    • Karthik Rangappa says:

      You will make a profit if the option hits any value higher than your purchase value. In this example, you will make 14.5 as profits.

      • ABESH GHOSH says:

        Thanks a lot Karthik for the response. But still not clear with profit of rupees 14.50. Should not it be 4.95 rupees profit on each unit of bank nifty?

        Moreover, want to confirm one more doubt. I need not wait till expiry of Dec. I can indeed exit the position when ever I want before Dec if option premium goes up, right?

  63. Sahil says:

    I have been trying to study options for the past 4 years.Trust me …this is best thing i am reading about options…..this is just Woow…

  64. Nachiketa says:

    Hi Karthik,

    First of all I can’t thank you and your team enough for creating this amazing resource and keeping it free to access. I have opened an account with Zerodha in May and soon after found this treasure trove of knowledge. I have gone through the modules on TA and FA at least twice, I think. Few days back I started with the modules on F&O. Thanks to these well explained articles with appropriate examples, I’m now able to comprehend Options as a precise and methodical calculated risk-reward instrument instead of a vague gamble. (PS: I’m a big fan of the caricatures that accompanies these articles. I remember you had mentioned the name of the person behind these drawings in one of the comments, forgot the name though)

    Moving on to the question I had regarding moneyness of options, this is more for my understanding than a question. Can we interpret the strike options that would result in profit if it was to expire right now (making current spot price = expiry price) as ITM options? Similarly result in loss as OTM?

    • Karthik Rangappa says:

      Nachiketa, I’m so happy to learn that you found the content useful. I’ll pass on the feedback to our illustrator, he will be equally thrilled 🙂

      Yes, if you were to exercise your Call option right now, you will get the intrinsic value measured as Current Spot Price – Strike. This would be an ITM option. Likewise, for a Put option, the intrinsic value would be Strike – Current Spot price.

  65. muthu mariappan says:

    Pls let me know what is IV column in option chain sheet?

  66. Rakesh Aggarwal says:

    Sir, I chanced upon these modules while browsing on internet. First I will like to thank you for you fabulous work in bringing the varisty and knowledge to the reach of common person.

    Sir, my question is intrinsic value of call is spot price -strike price. The ITM call prices should be around this as explained in your aforesaid chapter. But on going through the option sheet of nifty of date 29.12.2017 I calculated the same for strike ITM 10350 it should nifty spot 10530-10350=180. But it is priced at 262.30. Similarly for other ITM strike rates they are higher priced.

    Sir, I should take it as overpriced and can be sold or their is time value added in the pricing.

    Sir please clarify my doubt. Regards.

    • Karthik Rangappa says:

      The option price of an ITM will be ‘at least’ equal to the intrinsic value of the option. Over and above this, everything else is attributable to the time value of money.

  67. Rajesh says:

    Intrinsic value of call option = Spot Price – Strike Price
    Intrinsic value of put option = Strike Price – Spot Price
    But you took values in reverse order for calculation
    @ 7100
    Intrinsic Value = 8060 – 7100 (call option ) 8060 is Strike price
    = 960
    Intrinsic Value = 7500 – 8200 ( put option) 8200 is Strike price
    = – 700
    Kindly check .if I am wrong kindly reply

  68. MJ says:

    When new option strikes will be opened for trading? For example – Today RNAVAL options are available only till 77.5 and its opened today only. When 80 strike option will opened?

  69. Ankit says:

    Hello sir,
    kartik sir i posted a problem here few days back about JP associates option chain. Now i am unable to find that here on this forum. i dont know what happend

  70. Ankit says:

    sorry sir,
    Now its saying (your comment is awaiting moderation) what is mean by this????

  71. Abhishek Jha says:

    In the image of Option Chain of ASHOKLEY, Intrinsic Value for few of the Strike Price is empty. (for eg. For the strike price of 40, 42.5, 45 in CALLS section.) What does it mean and signify?

  72. Harsha says:

    Am I right in assuming that the Intrinsic Value is applicable only for Longs and not for Shorts? As a result, what we term ‘ITM’ for Long Call is actually ‘OTM’ for Short Call and what we term ‘OTM’ for Long Call is actually ‘ITM’ for Short Call, right?

    I ask this because if a seller chooses a Short Call strike of 8700 which is Deep OTM as per Section 8.2 above, there is high likelihood that he gets to keep the premium received – and hence he is essentially ‘In The Money’ contrary to what NSE displays the strike as OTM.

    • Karthik Rangappa says:

      The intrinsic value calculation remains the same irrespective of long or short position. So if an option is ITM, it will remain ITM irrespective of the long or short position.

  73. Madana Gopal says:

    Hi karthik,
    Is there direct option to trade ITM, ATM & ITM on zerodha? Or we have to trade like call 2 lot buy & put 1 lot buy in different strike rate ?

    Thanks in advance..

    • Karthik Rangappa says:

      Madana, I’m not sure if I fully understand your question. However, you can select any strike or any option type and transact in it. No restriction as such.

    • Anil says:

      Madana Gopal Based on intrinsic value strike prices are segregated in to ITM ATM and OTM options looks like you didn’t understand clearly go through tutorials again…..

  74. Anil says:

    Karthik you did awesome job.. I have 5 years of experience Never saw this kind of amazing super easy tutorials earlier…
    you are the besttttttttttttttttttttttttttttttttttttttttttttttttttttttttttt

  75. Ankit says:

    Hello sir
    Sir I am watching CD option chain
    RBI reference rate is 63.4983
    So 63.50 strike is ATM but look at their premiums:-
    63.50 Call is @ 0.4925/- & IV = 4.47%
    63.50 Put is @ 0.2475/- & IV = 4.97%
    Call is almost double than Put.
    I think there is no intrinsic value in both side both are almost totally time values & I don’t think volatility playing any major role behind the scene.
    Then why there is HUGE difference in their value. Could you pls… Explain this ..
    Thank you so much sir….

  76. Ankit says:

    Yeah that’s ok sir, but I didn’t get why there is HUGE difference in their price above. I guess both are ATM option
    So their values should close to each other but they are not. In fact CALL option is double than PUT option in price in this case.
    Assume:- At ATM STRIKE
    Put is at 100/- than CALL at 70 to 140 is digestible but if call is 200/- it’s too much
    That is what I want to know about …in my previous query…
    Why there is HUGE difference In CALL AND PUT OPTION value at ATM strike
    I hope you got my question……
    Thank you sir..??

    • Karthik Rangappa says:

      Ah, yes got your question. Clearly, the volatility is not playing a role here as the IVs is similar to both the options. The only explanation is that since the calls are at almost twice the price – the market is perhaps expecting the USD INR to increase (as in the Rupee to weaken against the $). Hence owing to aggressive buying the call option has increased. Now if this explanation is true, the volumes of calls should be much higher compared to Puts. Can you validate that?

      • jOSE says:

        Ah, yes got your question. Clearly, the volatility is not playing a role here as the IVs is similar to both the options. The only explanation is that since the calls are at almost twice the price – the market is perhaps expecting the USD INR to increase (as in the Rupee to weaken against the $). Hence owing to aggressive buying the call option has increased. Now if this explanation is true, the volumes of calls should be much higher compared to Puts. Can you validate that?

  77. santosh patidar says:

    Please consider small Suggestion : For particular topic, you can also mention books ( recommended ) related to that topic, as in many comments it is asked ? + link to some videos also can be added.

  78. Ankit says:

    Yes sir you are volumes are increasing at call side at steady pace
    Thanks for replying sir…?

  79. Ravi says:

    so at the day of expiry all OTM contracts become worthless but are we suppose to square off the positions (NRML & MIS both) before expiry to avoid excess STT or we can just let it decay?

    • Karthik Rangappa says:

      If the option is worthless, then maybe you can let it expire. But do make sure you sq off the ITM options before expiry.

  80. Aishwarya says:

    Hello sir,
    You have mentioned “Before we wrap up this discussion, here is a question for you – Why do you think the intrinsic value cannot be a negative value?
    To answer this, let us pick an example from the above table – Strike is 920, spot is 918, and option type is long call. Let us assume the premium for the 920 Call option is Rs.15.”

    If the buyer can buy the stock at 918 in the open market, why would he exercise his right to buy the stock at 920. Hence the option became worthless. So for this reason an intrinsic value can never become negative. Is my understanding correct sir??

    Thank you so much for all your efforts of responding queries.

    • Karthik Rangappa says:

      Hmm, I think you need to spend a little more time on understanding options, Aishwarya.

      I’d buy a 920CE when the spot is at 918, by paying a premium of 15, only if I expect the market to go much higher than 918+15.

      • Aishwarya says:

        Hello Sir,

        Thank you for your reply. But the above scenario is on day of expiry. Its for the reason why the intrinsic value can never become negative. (in referene to the above chapter). Pls correct me if Im wrong.

        Thank you so much sir

        • Karthik Rangappa says:

          Have explained why the IV cant be negative. Yes, I understand your concern about expiry, but then before the expiry, there is always time value.

  81. Kiran Raj says:

    Hi Karthik,
    I just wanted to say that this is awesome work. I have just started taking options trading seriously, but I wanted to know more before I could jump in. I accidentally happened come across your awesome work. I have gone through the 11 chapters in just a matter of 2 hours, I couldn’t stop myself from praising the one who framed this. The examples were kept simple, language was kept basic, making sure that even a novel reading kind of approach would register all the stuff into the brain. Thanks a lot once again. I would go through all the modules and write to you if I have any queries.

    • Karthik Rangappa says:

      Kiran, thanks so much for the kind words 🙂

      I hope you continue to find the contents on Varsity useful, please feel free to ask your queries.

  82. bharadwaj says:

    I’m sorry if I’ve understood it wrong, but I thought IV for call options is Max[Spot Price – Strike Price] and vice versa for put options. In that case, any value below the current level 8060 will have a -ve value and hence 0 IV. In the example above for Moneyness of Call option, it’s mentioned the other way round. Let me know. Thanks!

    • Karthik Rangappa says:

      The intrinsic value of Call option is Max[Spot-strike, 0], so if the value is -ve, we consider it as 0.

  83. achal says:

    Dear Sir

    As a lot of persons has earlier said that they come to this great work only by chance; it is true in my case ALSO.
    The material has been put in a quite simple manner so that it can be easily understood by anyone. I find it so interesting. I am reading it 3rd time. Each time I get more and more knowledge. Thanks to the author for presenting the material in a simple manner. I am finding the stock options as a treasure as I have been and investor in cash market. Though i am using it as a hedging. Earlier in cash market i could not have decided my exit.
    Sir I bought 305 shares of Indus Ind bank @ 1700. At the rate of 1800, I came to know about options. As I was in a profit so I decided to sell a call of 1920 @ 9 keeping in mind that i will sell my stock at the strike price.
    Pls guide me about the consequenses and what would be my profit or loss if the spot price goes above 1920. and what should be my strategy.
    Thanks & regards,

    • Karthik Rangappa says:

      Thanks for the kind words, Achal. Happy to note that you are liking the content here.

      YOu will retain the entire profit of Rs.9, as long as Indus Ind Bank is below 1920. For every Rupee increase in the scrip (beyond 1920), is a Rupee loss for you.

  84. Arjun Kapoor says:

    I am not sure what type of teaching power you possessed. Amazed by the simplicity of this article explaining a complex topic.

    • Karthik Rangappa says:

      Hahaha, thanks Arjun for the kind words. I guess you do things with a lot of love, the outcome will be sweet 🙂

  85. Rakesh Aggarwal says:

    Sir while scanning the increase in OI for the expiry 31.05.2018, it is observed that there is huge increase in OI for call options strike 8600 and 9000. Both these strikes are deep ITM having no time value premium. Sir can you explain the reason for the increase in OI for these strikes. Regards

    • Karthik Rangappa says:

      Rakesh, it is really hard to figure out a reason. Perhaps, there are a bunch of people who believe these trades are worth taking on 🙂

      • Shivam says:

        It is also possible that prevoiusly they had opened positions now it became deep ITM and they wanted to close their position so you are seeing a huge OI in deep ITM.
        Just a random guess…

  86. Vivek says:

    Hello Kartik,

    Thanks for the details.
    I have one doubt which no one in my circle answered it to my conclusion.
    On 17th May 2018 BankNifty was @26200-26300 range it was bearish.
    I was tracking BANKNIFTY 17th May PE of Strike price 27000 and premium was 700+(ITM)
    My Question was if I sell/Write this 27000PE contract I was in a gain of premium and it was expiry day for that contact. But the end of the day I saw an increase in premium price as Banknify went down by 200 points but as it was expiry I was expecting the price to reduce to zero and seller of PE would gain profit. End of market price was 900+. I am missing something here. 🙂 Please help.


    • Karthik Rangappa says:

      Vivek, the put option gains moneyness (or gains in premium) when the stock price drops. So with the drop in Bank Nifty, the premium also increased.

      • Vivek says:

        Thanks, Kartik for the reply.
        Increase in premium is clear but on expiry as I know price crease to zero.
        Suppose someone sells Put of that strike price will be entitled to gain all the premium.
        But as I said EOD price was not zero but 900+ and that was an expiry day for that option.

        What will happen in this situation?

        • Karthik Rangappa says:

          900 is the last traded price which will be different from the settlement price. The settlement will happen at the settlement price.

          • Daniel says:

            What would be the settlement price in this case sir ? Will it come down to 0 since it’s the expiry ?

          • Karthik Rangappa says:

            There is a lot of time to expiry, Daniel. Anyway, the settlement is always at the intrinsic value.

          • deep says:

            The strike you chosen was ITM(if it expired as ITM) …I think ITM options are immune to time decay and most OTM options are more likely to expire worthless and ITMs expire with some worth. plz correct me if i am wrong

          • Karthik Rangappa says:

            I’d put this in a slightly different way – the rate at which an ITM option loses value owing to time is slower compared to an OTM option.

  87. Daniel says:

    Dear sir, today is the start of a new contract. I visited NSE website to have a look at the option chain for ‘FEDERAL BANK’ and to my surprise not all strike prices mentioned in the chart had a Premium value, some of them were represented by a ‘-‘ .

    Could you please tell me why this happens?

  88. Sushanta Meher says:

    Hi Karthik,
    Just a basic query. I didn’t find anyone asked that earlier. Will appreciate your clarification please.
    Hypothetical situation :
    Stock XYZ spot price = 100
    Theta per lot 200
    Day1: Bought 1lot(1000) 100CE @10
    Day2: no trade. Spot price= 90
    Day3: spot price = 105
    So zerodha shows me profit of (105-100)*1000 =5000.
    Is it the true profit. If yes then where is the calculation of theta?

    • Karthik Rangappa says:

      Yes, that is how your P&L is calculated. Theta is an options Greek, ts calculation is based on the B&S options calculator.

  89. Shivam says:

    If my sell position expires ATM then I’ll get full premium/partial premium or I’ve to pay more money than the premium to close my position?

    • Karthik Rangappa says:

      If you sell and the option is ATM or OTM, then you will retain the entire premium. If the option is ITM, then you will lose money.

  90. Ashish says:

    Hi Sir

    As you mentioned , Call option Intrinsic value = Spot Price – Strike Price.

    When I am checking at today’s scenario Axis Bank June 18 530 CE , where spot price is 519.10.
    so IV = 519 -530 = -11 which is not realistic as you said.
    But when I am checking it at Nifty Website in option chain , its showing IV 30.71.
    How is it? Can you please clear?

  91. rajesh says:

    Kindly reply me, sir
    ATM can be negative or positive, but it should be very close to the spot price… Is it correct?

  92. Chirag I Sharma says:

    Hi Karthik, as I post this BNF is at 27146 and the 27000CE is at 158 which is almost the intrinsic value of the call. But, the 27100 CE is at 93, which is 2X of its intrinsic value, i.e. there’s time value involved.

    Why such a difference in the ATM call? Both should be at almost intrinsic or nearby, right?

  93. akshat sharma says:

    so we have the border for otm and itm which is atm, similarly can we generalise a percentage for a border between deep otm and otm for any stock?

  94. Nakul says:

    Yesterday i buyed a call with 3.3 premium & it closed at 3.4 Today 3.4 is being shown as my buy price & not 3.3 Why so sir ?

  95. Manas Pandey says:

    Dear sir,
    Firstly sorry to go a bit off topic but only an expert like you can answer such a thing.
    I came to know about a gambler called Bill Benter who is said to be world’s richest gambler & have amassed 1billion $ just by betting on horse races. But the strange fact is that he didn’t just randomly bets on any horse, instead he has developed a statistical model which could very accurately predict the winner of the race. But sir, how in the world is this possible ? A horse race would be won by the most fastest horse, how come is it related to mathematical formulas anyway. Is mathematics really so powerful ??

    • Karthik Rangappa says:

      Manas, I don’t know about Bill Benter, but this sure sounds possible and it does not surprise me. Have you watched the money, Moneyball? If not, I’d suggest you do to understand the role of stats in game theory 🙂

  96. Manas Pandey says:

    Sir, i tried to open an account with zerodha so i clicked on “open an account” in the website, entered my details & clicked “continue to sign up” but nothing is happening. I tried multiple times but nothing happened. Then i downloaded kite, tried signing up through there but it says “duplicate entry lead”. What to do…

  97. Gaurav says:

    Sir, I want clarity on this. We know that if in the money option is not squared off in expiry, STT is charged on full settlement. I had a bank nifty 27500 PUT which ended up in the money. It closed at 27478 last week expiry. Now SEBI gives option of “DO NOT EXERCISE” these days. I did not get that from zerodh side. Hence I contacted support. They said it’s automatic if profit is less than STT than option won’t be exercised. I understand that STT would have been higher, so it’s a loss saver for me. But suppose in some stocks we don’t find a buyer on expiry, or bids aren’t what in the money option deserves, and we are forced to keep the option. In that case what to do then? We will never credited our profits? I can’t even see your shadow in back. It’s someone else.Dont you think “Do not exercise” option must be provided like other brokers?

    • Gaurav says:

      In above case I had 25 lots of bank nifty . So, 22 points (2700-2478) will make it 22000 Rs profit on 25 lots. Had I squared off my purchase premium was around 2 and it ended at 15, so 13 points would be 13000 profit in that case (if I squared off before 3:30). Shouldn’t I get 13000 credited because my option is considered “not exercised” by your system automatically?

    • Karthik Rangappa says:

      Gaurav, your comment has this line – ” I can’t even see your shadow in back. It’s someone else”, I’m curious to know what this means 🙂

      Yes, in case of low liquidity, you’d be stuck with a position, although exchange would ensure its settled for you. The Do not exercise option would be applicable in this situation as well.

  98. Manas Pandey says:

    Dear sir,
    This question may sound stupid but sir i am really intrigued to know is it really possible ?.
    Sir, suppose i have 1 crore rupees to trade. Now if buy call option of premium 30 by using whole 1 crore then i would be able to buy 4444 lots. & if it moves just 1 point above, that is 31, it is showing a whopping profit of 315,174 rupees.
    That means if someone do this only 4 times in a day properly he crosses 10 lakhs per day in earnings.
    So is it really possible to earn such crazy money if we have a large capital ??

  99. Manas Pandey says:

    Dear sir,
    I recently read somewhere about what people were saying as exchange lot restriction is 100 lots per order. But i am not able to get any info. on it. I have heard people trading many many lots intraday but never heard about this 100 lots per order restriction. Is this true ?

  100. Manas Pandey says:

    Sir, can u please tell about open interest in terms of lots ?? Like suppose lot size is 75 & open interest for a particular strike is 4 million. So does that mean that 4 million lots have been traded today ?

  101. lakshmi devi says:

    if we sell a call option .. at the end of expiry do we need to buy compulsorily if the premium heading to zero

  102. Ananth Gopal says:

    Hello Karthik,

    Understanding that we don’t have to wait till the expiry of the option, however what if the exchange happens to square off the trade on the expiry day, then what is the penalty for the buyer of an option and what is the penalty for the seller of an option, irrespective of the underlying and strike price.

    • Karthik Rangappa says:

      The exchange will be considered is settled and do the needful only if you have an open position by expiry. There are no penalties as such.

  103. Ananth Gopal says:

    Hello Karthik,

    Please let me know how can send you a screen shot for which I have a query. Thanks in advance.

    • Karthik Rangappa says:

      You can always upload this on Google drive and share, Ananth.

      • Ananth Gopal says:

        Hello Karthik,

        Please find the image with this link –

        This is the image taken after the closing hours of market on 15th Nov 2018.

        My queries related to the Image that I have shared.

        1. Banknifty 15th Nov 26100 PE – Since it is the expiry day of the week the price of the option contract has come down to Rs.0.05/-. which is understandable.
        2. Banknifty 15th Nov 26100 CE and Banknifty 15th Nov 26000 CE – Even though it is the expiry day the prices have not come down and even at the last minute we can see the prices were increasing which shows that people were buying and selling the option contract at the last minute. Please clarify:
        A) Is it not necessary to have the prices of the option contract coming down to zero on the expiry day?
        B) What will happen to the option Contract from the buyers point of view and from the sellers point of View?
        C) How does P&L will look like from buyers perspective and from seller perspective?

  104. sm jain says:

    Hello karthik sir, i have no words for the entire zerodha team… Great great job… My question is that why we see small lot size on some Strike Prices whereas minimum lot size is already pre determined and kindly let us also known that on which types of strike prices may be option buyers don’t get out when they feel profitable or something like that they feel that they are blocked because of suddenly nobody wants to buy the contract (cause buyers now want to square off their opened position).. Thanks a lot again you guys did a brilliant and highly appreciable work for all types of investors and traders…

    • Karthik Rangappa says:

      Thanks for the kind words, Jain.

      Which lot size are your referring to? They are predetermined as you said and does not vary based on strikes.

  105. Akash Haridas Padole says:

    What is
    Or what what PE stands for is it PUT option in European

  106. Vishal says:

    Why Zerodha don’t allow to buy deep out of money or in the money options?

  107. karthik says:

    Sir, today when bank nifty spot was at 26940 ,the 26700CE was trading at 205, which should atleast be ideally 27940-26700=240 and plus suitable time value? can u explain why so?today is expiry day..JAN 31 Expiry

  108. Chirag I Sharma says:

    As per this module depends on whether we’re in the first half or second half of expiry AND when can the target hit.

    My question is- How would someone know when it’s target would hit. You had taken an example of 4% target hit in 2-3 days, but how’d I figure that out?

  109. sushma says:


    There is a mistake in @ 8.3 Chapter, calculating put options intrinsic values.
    its spot price is 8202
    in the calculation, you used atm 8200 as the spot price

  110. FM says:

    Hey Karthik, perspective of viewing stock, I have following query/conflict to me to understand..

    #1) When the spot price is below the strike price, say spot price is Deep ITM then stock price increase to reach strike to become ATM, then premium will decrease, isn’t it..?? and over the period spot becomes OTM, then if I sell my stock, only premium will be calculated, right. But when stock is at OTM then premium is lesser value than D ITM..??

    #2) When does strike price gets change.? My actual query is, if everything (spot, strike, premium) is getting changed over time, which value I have to consider as constant and start using the formula’s explained here.?

    • Karthik Rangappa says:

      1) If you are talking about a PE option, then yes.
      2) Strike’s dont change. It remains constant throughout the life of the contract.

  111. Anitesh Singh says:

    Hi Kartik..

    I have initiated a bear put spread in Ashok leyland..
    What will happen if I don’t square of my position before expiry?

  112. CHIDAMBARAM V says:

    Hi Sir,


    We know this is the ATM option as 8050 strike is closest to the spot price of 8060. So we will not bother to calculate its intrinsic value.”
    since 8050 is ATM, during the expiry will this option strike also be worthless or or since there is a intrinsic value of 10 (8060-8050) the amount equal to 10*lot size would be our Profit?

    2.I have also heard that the first strike in OTM is the ATM ( rather than the closest to spot price). In the example mentioned in this chapter it should be 8100 as the spot has crossed 8050 and CMP is at 8060.Is this true?

    3.What is the use of ATM strike identification?

    • Karthik Rangappa says:

      1) If the market expires at 8060, then you’d get 10*lot size, provided its a CE
      2) It is always ‘in and around’ the current market price, so look for those strikes
      3) It is the central strike, which coincides with the current stop price. It has the closest chance of transitioning into an ITM option. Holds good for both CE and PE.

  113. Monika says:

    Hi Sir,

    I traded BankNifty 29900 CE on the expiry date of 04Apr2019. The BankNifty closed at 29904. I had purchased for 0.50 INR and two lots (20*2=40). So ideally as per the information available on the page, something like this should have reflected on my transaction statement of 04Apr2019:
    (29904-29900) = 4
    (4 – 0.50) * 40 = 140 INR
    But nothing like this showed up. What am I missing here? Please share your thoughts.

    Thanks & Regards,

  114. Varun Patil says:

    Hello Karthik sir,
    I am a great fan of yours sir your teachings really helped me a lot,just wanted to ask that where can i learn in depth about how to analyse option chain.

    • Karthik Rangappa says:

      Happy to note that, Varun. Is there anything particular you are looking for in an Option Chain? Maybe I can help you with it.

  115. FM says:

    Hi Karthik,

    Can you also please refer or explain the remaining columns in option chain.? viz., Volume, IV, Ask price, Bid Price, Net Change, OI, Change in OI.??

    • Karthik Rangappa says:

      Volume = total buy + sell
      IV = Intrinsic value
      Ask Price = The latest price at which one can buy
      Bid price = The latest price at which one can sell
      Net change = change from previous day’s close
      OI = Current Open interest
      Change in OI = Change in OI wrt to the previous day’s OI

      • FM says:

        Karthik Sirrrrrrrrr…… Need info like, how each individual will impact / not on the price of share.? For example, Why OI and Change in OI is required, will it add any significant info which we can use it for trading.? similarly IV.? etc., elaboration or explanation in your terms.?

        • Karthik Rangappa says:

          You need to understand what each variable is (which is explained in the chapter), and once you do that you will automatically understand the impact 🙂

  116. Gautam says:

    Today nifty closed 11944
    But why 11900 ce was closed at 37 not 44
    It breaks intrinsic value rule . Why did it happen

  117. Mihir Trivedi says:

    Hello, I want to know that what happens if I don’t sell my in the Money call option. Example: Bank nifty 31300CE which trades at 100 rs. At 15:30 on the expiry day,and the spot is around 31450. I have 10 Lots.

    What happens if the option expires at the same rate without selling it. How much will be my P/L?

  118. KANIKA AGARWAL says:

    Hi Karthik,
    Some people refer to the Futures price to mark the ATM strike and sometimes Futures price and Spot price indicate towards 2 diff ATM strikes. So, I’ve a couple of question here-

    1) Which is the right standard for ATM strike – Future or Spot?
    2) In case of a confusion, is there any other way to confirm ATM strike, like lowest IV or highest straddle price at that level etc?

  119. lalit says:

    in above pic

    IV = SPOT PRICE – STIKE PRICE [ In yellow box ]
    = 68.70 – 67.50
    = 1.2

    But above snapshot IV = 45.72 How ?

    • Karthik Rangappa says:

      Sorry for the confusion, in the equation – IV = SPOT PRICE – STRIKE PRICE, IV refers to the intresic value. But the IV you are talking about is implied volatility, which is 45.72%.

  120. Hemant Kumar says:

    Thank you so much sir ! For everything is well explained.
    1 what is logic behind ITM optioms are always expensive compare to OTM options.
    2. One thing is clear here whatever concept of call option, put option is exact opposite to call options, My question is this does it not make any confusion while trading because during market time every second or minutes can change premium and profit/loss as well.
    Once again thank you sir for all your team for such a great effort.

    • Karthik Rangappa says:

      1) This is because the ITM options have intrinsic value compared to ATM or OTM
      2) This is exactly the reason you need to familirize yourself with the working of Call and Put options, both from the buyer and seller’s perspective.

  121. Sidhant Jain says:

    Dear Sir,

    Thanks for all the efforts that you have put in this module. I will be starting trading in options soon. However, certain things like STT trap, tells me that there is always scope of learning.

    Sir, my question might sound foolish but I just want to make sure I am not missing anything. Sir, if someone has enough capital to trade in current month NIFTY call options, then won’t it make sense to only buy deep ITM options. If I draw a bell curve taking all the possibilities till which Nifty can fall with 99.7 probability, and buy an option accordingly outside this range and there is no black swan event, then in any case, I WILL make profit. So, it makes sense just to trade in deep ITM options and make profits.

    Also, Sir, one is supposed to square off a long call before expiry to avoid excess STT, but is there any chance when there arw no buyers and one can’t square off?

    • Karthik Rangappa says:

      Sidhant, there are no guaranteed profits in the markets, even if you buy a deep ITM option 🙂
      The assumption is that you’ll have an infineite amount of money to keep doing this every expiry, which I’m not sure is a possibility. By the way, you will have to backtest your theory across multiple expiries to see how the P&L has behaved before taking this live.

  122. Satya says:

    Hi Karthik,

    BankNifty on 29th Aug 2019 closed at 27305. but 27500 PE is at 161.60 for August Expiry.
    Though it is 195 points in the money, the premium is 161.60.
    Could you please explain why the premium is not equal to intrinsic value. even though STT is applicable for ITM contracts, but this much huge difference on closing day?

    Thanks & Regards

  123. sumeet says:

    Halo karthik sir,after the change in STT calculation rule,now on expiry day if i hold a option which is expiring now IN THE MONEY,for eg. M holding icici bank 380 CE and the cmp is 391 on expiry day and i want to exercise the right,so what is the procedure for that in zerodha,and how much money should i have in my trading acnt for that,and how much profit will i get finally after exercising the right??

  124. Shashee says:

    Hi Sir,
    Very thoroughly explained with NSE example chart and I understood very well and thank you for that.

  125. Prashant says:

    From Sept. 2019 How will be STT calculation for option buyer on expiry?

  126. Abhishek says:

    Hi Sir,

    Just got to know about this, so have following doubts:
    1) If we are long stock options so to avoid margin requirements we’ll have to exit the option by expiry week Tuesday EOD, Right?. Are there any exceptions to this (where we need to exit even before Tuesday).
    2) In case of long stock options – Can we have an option in Zerodha while initiating a transaction (option like “would you exercise the option – Yes, No”). If No, then there’d be no margin requirements from Wed and option would get squared off automatically 5 mins before expiry time on last Thursday and if Yes, then that margin thing applies starting from Wed.
    This is because we’ve seen big moves on the expiry day and margin is hard to afford especially if we have more than even 1 lot.

    • Karthik Rangappa says:

      1) There is no margin required for long options, you only have to pay the premium amount. Also, the expiry for monthly options is the last Thursday of the month
      2) Unfortunately, this is not possible. You will have t manually execute the trade

  127. Abhishek says:

    but as per mandatory physical delivery requirements do we not require margin for long stock options if option carried till expiry day, i’m not sure if i got this is right.

  128. Rahul Mishra says:

    Dear Sir,

    I have a doubt.
    In this module, till now, you have stated that if we have a bullish view, then we must buy a call option or sell a put option depending on the premiums. Likewise, if we have a bearish view, then we must buy a put option or sell a call option depending on the premiums.
    Then, why do ITM strike exists ? ITM strike is contrary to the above concept. If we buy a call option with ITM strike, then we are bearish and if we buy a put option with ITM strike, then we are bullish.
    Kindly explain.

    Rahul Mishra

    • Karthik Rangappa says:

      Rahul, I’m not sure if I get your point. How can ITM call be bearish? In fact, it is more bullish compared to ATM or OTM CE.

  129. Rahul Mishra says:


    For ITM Call, the strike price is less than spot price, this means that we are expecting the spot price to decrease till strike price. Thus, we are bearish on the stock. (I thought it in this manner, may be I am completely wrong.)
    Kindly clarify my doubt.

    Rahul Mishra

    • Karthik Rangappa says:

      Hmm, no Rahul..this does not work that way. The strike is fixed, what moves is the option premium in accordance with the spot price. I’d suggest you start reading this module again starting from chapter 1.

  130. Beginner says:

    If there are two strikes 8050 and 8100, spot price is 8075 then both these strikes are referred as ATM right? So there can be two ATM at some point?

    • Karthik Rangappa says:

      No, officially there can be only one ATM for CE and one for PE, but practically, both the strikes here are ATMs since they are so close to the spot.

  131. Siddharth says:

    In the option chain snapshot shared, why do the top strike prices of 40,42.5 not have any bid or ask price?

  132. Arqum Beg says:

    Hello Karthik,

    two questions-
    1. Can you suggest some good books on options ? to increase our knowledge further..
    2. I think it will be very helpful if in each module of Zerodha varsity if you can add a reference section and mention further readings like books, blogs articles etc.


    • Karthik Rangappa says:

      1) What other additional knowledge are you looking for?
      2) Have done that in many chapters, wherever it is relevant.

  133. Abdul Maajid says:

    Respected Sir,
    I understood ITM, ATM, OTM.
    I went through the nifty options link u gave .
    Just 1 question ,
    Why are some rows empty
    ( OI , change in OI , volume , IV , LTP , net chng )
    Thank You.

  134. Akash says:

    In the above snapshot of Nifty options chain, you said ITM options are shown in pale yellow colour and OTM options in white colour background. As you can observe, the various strike prices of Nifty options chain differ by 50. So if the underlying (Nifty here) moves by more than 50 (above or below) then this pale yellow and white background will change. If the market is too volatile then it means this colour pattern should change dynamically. Is it so sir? Does the background colour of ITM and OTM option chain gets changed so dynamically ?

  135. Akash says:

    A small correction is required in “8.3 Moneyness of PUT Option”. In the example, you said Nifty spot is at 8202 but in calculations, spot is taken as 8200 (not 8202 although difference is quite low). It creates confusion as IV = Strike – ATM Strike (8200) but actually it should be IV = Strike – Spot = Strike – 8202.


    • Karthik Rangappa says:

      Ah, thanks. Let me check this. Btw, what all are you reading on Varsity? I see your queries everywhere 🙂

  136. Akash says:

    Suppose the spot price of a scrip is Rs. 85 and the available options strike are . . . . 70. 80, 90, 100 . . . ..
    In this case, both 80 and 90 are equidistant from spot (85), then which strike will be ITM and which will be OTM ?


    • Karthik Rangappa says:

      The strikes are developed based on the Rupee value of the underlying. If its 80, then I think strikes will be available at every 2.5 or 5 Rupees.

  137. Akash says:

    I have read all the modules of Varsity once. This is the second time I am going through all these modules, trying to make best possible use of this lockdown time. I have never seen such a great material like Varsity.

    Sir my query is:
    Suppose I place an order of Nifty 8400 PE SHORT (Sell). As soon as I place this order, my margin gets blocked. Now I place another order of Nifty 8600 PE LONG (Buy). As soon as I place this second order, my margin gets released and overall margin due to these two combined orders gets reduces. But what if I change the sequence of placing these orders i.e. first I place an order of Nifty 8600 PE LONG (Buy) and then Nifty 8400 PE SHORT (Sell) ? In that case, while shorting the Nifty 8400 PE, will I be required the original whole margin or the margin gets reduces due to the combined orders ?

    And lots of thanks for developing such a great material and that too free of cost. Before coming to Zerodha, I infact paid huge sums of money for the study / learning packages offered by many other brokerages.

    Thanks and regards

    • Karthik Rangappa says:

      The margin is reduced based on the overall risk of the positions. Which means to say that you have to place the order with full margin, after you take the position, the risk is assessed by the system and margins are released.

      Good luck and happy reading 🙂

  138. Christy says:

    With regards to option chain Do Difference between LTP and current market price predicts anything?

  139. HITESH MINHAS says:

    what will happen if i purchase a CE at OTM ? The price changes daily, so maybe it can later on become ITM also .

  140. Christy says:

    Thank you so much sir. But I sometimes observed difference in my kite platform and nse chain

  141. Alok says:

    Hi Karthik,

    I have a question with respect to LTP. Is LTP decided by demand and supply or by the Option Pricing Model followed by the exchange.?

    Also, in case there is a huge demand for say particular strike price, even then will the LTP not change as per the law of demand supply?? Based on order matching, will only the OI change?


    • Karthik Rangappa says:

      LTP is a function of demand and supply but is also dictated by its fair value derived from B&S model. Multiple forces act simultaneously on option, Alok. You need to be aware of this while trading option.

  142. Alok says:

    Thanks Karthik.

    So u mean to say that i can outbid the highest bid of a strike in case I absolutely want to trade no matter what. But it will be somewhat near the BS theoretical price?

    Also, is there a specific range or a parameter that measures this effect of demand supply?


  143. Nirav Joshi says:

    Dear Karthik,

    Kindly accept my sincere gratitude for writing such an informative and easy to understand material. I was looking for many resources but you have magic in your writing which keeps me glued with these chapters. Thank you once again.

    Lots of Love,


  144. arun says:

    Karthik please Correct me if i am wrong-
    if i buy/sell option today and i want to exit the position before expiry then Profit or Loss will be calculated based on premium difference.
    if i buy/sell option today and i didn’t square off the position on expiry also then P&L will be calculated based on Strike price and Spot price , here premium won’t play any role.

    • Karthik Rangappa says:

      Yes, that’s right. At expiry, the premium will be a play on the intrinsic value, which is based on the difference between spot and strike.

  145. MUKESH PARMAR says:

    hi sir if i option sell , and after two day buy……. i can do it or no ,??

  146. Hemant Mali says:

    Hi Karthik,
    please help me with following doubts ,
    1) As you said in one of your module that Premium = time value + Intrinsic value, Today @ around 15:25 Nifty was trading below 9100 (somewhere around 9097,9098), so that made the 9100 PE option ITM . But to my surprise even though the time value was almost zero( because only 5 mins left for expiry ), and since it was ITM ,it should have been trading at premium of 2 , 3 rupees only because premium = time value (0)+ IV (2,3 rs).But it was trading at the premium of 6 Rs. Why was this so?
    2)When nifty closed the price was 9102 but after some time it was 9106 , why so?
    3) How nifty arrives at the settlement price ? what formula they use ? Can you pls explain this in detail?
    4) Is it possible that even though the premium is almost zero (0.05 or 0.10 Rs), Nifty to have Large Intrinsic value like 10 Or 12? For example , Nifty 9100 PE , premium 0.10 , spot 9110 Or 9112 . Is this scenario possible?
    5)How do people trade just few minutes before expiry and double their money ? since premium is almost zero at these times , can zero time value and large Intrinsic value exist simultaneously? If yes how?
    6) How can we buy at low premium and let the option expire and then cash in the intrinsic value? is this possible?

    • Karthik Rangappa says:

      1) Weekly options isit? Firstly they are not very liquid, secondly, you need to take the settlement price. You are looking at the LTP
      2) LTP vs settlement price
      3) It is the weighted average of the last 30 mins
      4) No, that is an unlikely situation
      5) I’m not sure either, a bit of luck and bit of skill I guess
      6) Depends on the market, right?

  147. Varanasi Anil says:

    Hai Karthik,
    I am new to options. varsity helps me to understand. Your way of explanation is simple and easy to understand for new comers also. I have a doubt in Call option buying. If I have taken a long position in call option at a strike of 360 with premium of 10 rupees. During expiry day if spot price is 363 and premium price reduced to 7 rupees. Will it be profit or loss on the expiry day? Can you please explain?

    • Karthik Rangappa says:

      On expiry, if the spot is 363, then the value of the option is 3, hence the premium will be around 3. Excess time value will decay due to lapse in time.

  148. Vinay says:

    Hi Karthik,

    Kudos on helping all of us. Really appreciate you taking time to answer our queries.
    I have a doubt on Options. Assuming I have taken delivery of 1 Lot of INFY trading at Rs 685 and I sell a Put Option at Rs 800 strike price with Rs 125 premium for 25-June-2020 expiry. What would be my P&L if INFY trades below Rs 800 (i.e. Put Strike price) on expiry day?

    Thanks much

    • Karthik Rangappa says:

      Vinay, the overall P&L is a sum of the P&l from individual positions. So on the delivery trade, you made 800-685 = 115 and on PUT you will lose to the extent of the intrinsic value of the option. YOur net P&L is the sum of these two trade.

  149. Pradeep says:

    Hi Karthik,

    It is really nice to go through these simple, yet wonderful knowledge base for option trading

    i have few questions to be asked.

    what happens when we sell In the money option contract on the day of the expiry

    lets take an example of nifty currently trading at 9314 (At the time of writing this question) , if somebody sells an option contract of 8500 value or even lesser on the monthly expiry date, what is the profit potential for such trade execution?

    zerodha margin calculator shows margin of 142000 approximate is required for selling option (at the time of writing this question) with premium recieved around 46000 rupees.

    how the calculations (Profit and loss) are performed while we sell call option “In the Money or Deep in the Money” contracts?

    please provide your valuable guidance.

    • Karthik Rangappa says:

      If the option expires ITM, then the difference between the positive difference between the strike and spot multiplied by lot will be your P&L. The option will be exercised. But knowingly well that the option is ITM, why do you want to write this option?

  150. udbhav says:

    Hi Karthik,
    Kindly confirm the understanding that I have developed uptill now or correct me if I am wrong.
    Whenever there is an indication by a candlestick pattern (and other technical indicators) in NIFTY in spot market (say bearish,
    say 10070). From this data, I ll be selecting the Strike price in options and taking decision (whether to sell a call or buy a put) deciding on the amount of premium that I need to pay.
    Since I have bearish view on the market and my strike price is now 10050 and I am not keeping it till expiry (ie: benefitting from premium), whenever the price of premium will go down I ll be benefitting from the trade. Q1 RIGHT?
    Q2 Let say I sell a call @10050 premium 100, now when the price is in OTM I ll be benefitting from the trade as premium is lower and if the premium reaches in ITM range will be lossing money in that case. RIGHT?
    Q3 Let say I buy a Put @10050 premium 150, now when the price is in OTM again I ll be beneftting from that trade as premium is lower and if the premium reaches in ITM range will be loosing money in that case. RIGHT?
    I got actually confused by reading many comments but Please elaborate the role of ITM, ATM and OTM options with premium.


    • Karthik Rangappa says:

      1) Yes, once you sell/write, the value of the premium will have to reduce from the point you’ve sold. Else, you will lose money.
      2) Yes, best is to evaluate the premium – what price you wrote and what price it is now
      3) The premium has to increase after you buy the option. This is just the opposite of selling the option.

  151. udbhav says:

    Got that.
    Thank you
    BTW Its fantastic material that you and your team has prepared. Good luck.

  152. aniket says:

    why deep ITM’s have high premium and it goes decreasing as we reach deep OTM’s

  153. aniket says:

    i think because they have high iv, correct me if i am wrong

  154. Opto says:


    Plz.clarify : 1) to make profit Premium needs to be higher than the Premium paid for irrespective of the fact your a Put or Call Option buyer 2) you make money if you Spot Price is higher thn the Strike Price in case of Call Option buyer (opposite for writer) and if Strike Price is higher than the Spot Price for Put Option Buyer (opposite for writer). 3) one can set-off positions anytime if getting the desired premium. There is no need to wait till expiry.

  155. shashanka says:

    Good day Karthik,

    Intrinsic value calculation (spot – strike) for call options is applicable only if we exercise the option on the day of expiry.
    On the day of expiry, for strike 8400 CE if the spot expires at 8600 (in the money) –
    1. What is the return to the trader? Is it (spot – strike) and same is remitted to his account?
    2. Is there any additional charges for not squaring of the position and letting the option expire?

    Thanks a lot.

  156. Hari Prasadh says:

    Why should options always trade in lots? Why isn’t it offered as single quantities too?

    • Karthik Rangappa says:

      Derivatives are delt in pre-specified lots, remember contract standardization is a virtue of derivatives.

  157. sagar says:

    Hii kartik
    can option seller square off position before expiry date?
    in this context , how will be profit and loss.

Post a comment