We recommend reading this chapter on Varsity to learn more and understand the concepts in-depth.
Key takeaways from this chapter
- The intrinsic value is equivalent to the value of money the option buyer makes provided if he were to exercise the contract.
- The intrinsic value cannot be negative; it is a non zero positive value.
- The intrinsic value of call option = Spot Price – Strike Price
- The intrinsic value of the put option = Strike Price – Spot Price.
- Any option with an intrinsic value is classified as an ‘In the Money’ (ITM) option.
- Any option that does not have an intrinsic value is classified as an ‘Out of the Money (OTM) option.
- If the strike price is almost equal to the spot price, the option is considered the ‘At the money (ATM) option.
- All strikes lower than ATM are ITM options (for call options)
- All strikes higher than ATM are OTM options (for call options)
- All strikes higher than ATM are ITM options (for Put options)
- All strikes lower than ATM are OTM options (for Put options)
- When the intrinsic value is very high, it is called the ‘Deep ITM’ option.
- Likewise, it is called the ‘Deep OTM’ option when the intrinsic value is the least.
- The premiums for ITM options are always higher than the premiums for OTM options.
- The Option chain is a quick visualisation to understand which option strike is ITM, OTM, ATM (for both calls and puts), and other information relevant to options.
excellent presentation. how to go to the next module.
Varghese, you can navigate from here – https://zerodha.com/varsity/
Sir, can we expect some videos on Option Strategies as well in the upcoming sessions?
Will try and include that as well.
very informative videos, thank you versity. Requesting to share more video’s on option trading (like practical execution’s, how to select strike price, intraday trading in options)
We will do that soon, Deepika.
I was awaititng long to clear technical F&O concept.
Thank you Karthik and Zerodha.
Happy learning, Prashant!
Hello Karthik Ji,
I have already posted my query on 14.07.22 but still I didn’t get response from your end, so I am posting my query one more time
Why does the Open Interest shown in NSE option chain is different from Open Interest shown in Sensibull option chain? In fact OI numbers from these two websites are nowhere to each other. Or am I missing something to read? E.g. On 14 July 2022 at 11:22 pm OI shown on NSE open chain for Nifty Index 16000CE & 16000 PE are 1,67,185 & 2,06,550 respectively where as on Sensibull website OI for the same 16000 CE & 16000 PE are 86.3 Lakhs and 103.3 lakhs respectively. Or am I missing something to read? Please Guide.
Nagesh, I think you should check with Sensibull itself and may post your findings here to benefit others.
Hello Karthik Ji,
I have already posted my query on 14.07.22 but still I didn’t get response from your end, so I am posting my query one more time
Why does the OI shown in NSE option chain is different from OI shown in Sensibull option chain? In fact OI numbers from these two websites are nowhere to each other. Or am I missing something to read? E.g. On 14 July 2022 at 11:22 pm OI shown on NSE open chain for Nifty Index 16000CE & 16000 PE are 1,67,185 & 2,06,550 respectively where as on Sensibull website OI for the same 16000 CE & 16000 PE are 86.3 Lakhs and 103.3 lakhs respectively. Or am I missing something to read? Please Guide.
very poor explanation on the moneyness of the option. Would recommend Prateek explaining concepts, somehow he has the knack of simplifying things.
Yes, Prateek is good. Will pass on your compliments to Prateek.
Hi Karthik. If there is a call option of 2,100 and the spot price right now is 2,250 then that call option would be ITM by 150 points, right? Please clarify, as in the “Moneyness of the option” video the reverse was shown.
Similarly, if there is a put option of 2,100 and the spot price right now is 2,000 then that put option would be ITM by 100 points, right?
Yes, 2100 CE is ITM when the spot moves to 2250 and 2100 PE is ITM if the spot moves to 2000. Maybe a typo in the video.
I didn’t understand the point when he says, strike price and underlying price are roughly the same so there are 50-50 chances that strike will happen in the favour of the buyer. If both Strike Price and Underlying assess price are same then it is a loss for the buyer that there is no profit but premium has to be paid. Correct me if I’m wrong.
Yes, but we are discussing this keeping expiry in perspective. If strike = spot closer to expiry, then the chances of the option expiring ITM increases, hence the buyer tends to gain from that probability.
Dear Sir – Please be informed that on the day of expiry of an option trading in currency derivatives, my loss amount is aprrox. Rs. 4000.00 but option premium received amount is Rs.16000.00 due to call as well as put writing/selling. Is it that I have made a profit of Rs.12000.00(16000-4000). Kindly share your views about my understanding. What will be shown in zerodha P&L statement on this day of expiry? Sincerely awaiting for your reply. Thanks & Regards. Amit Kumar Sarkar, Kolkata.
Amit, I’d suggest you speak to a support executive about this.
How do I access the above screen that is displaying all the strike prices?
You can look at the option chain in Kite. Check this – https://support.zerodha.com/category/trading-and-markets/kite-web-and-mobile/others/articles/kite-option-chain
Hello Karthik Sir,
You are providing the good knowledge of options in very simplest way.
Your videos are very helpful for beginners like me.
Thank you very much and please keep providing a good knowledge to us.
Thanks for the kind words, Diwakar. Happy learning 🙂
in option trading- suppose market is trading at 18550(strike price) and I ordered a lot of call(CE) for in the money(ITM) on the strike price of 18500 and I sold the lot on 18600 so how much point’s profit I will get 50 points or 100 points??
You can actually enter these values in Sebsibull and get the exact P&L – https://sensibull.com/
Great videos ,but in this lecture I’m not able to get ATM,OTM, ITM
Do let me know where the confusion is Harsh, will be happy to help.