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Old 30th September 2010, 09:51 AM
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Default Reliance Options 30-Sep-2010-1050



Hello All

I am very new to options trading.I had taken reliance options(call) for 30th Sep at LTP OF 9.5 which went even till 13-15 LTP however has been trading at very low of 0.5-0.1 LTP since last 1-2 days.

I have seen that options generally trade at a very lower LTP towards the end of settlement period.

Is that correct? Experts kindly share your experience.

Cheers!
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Old 30th September 2010, 10:33 AM
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Default

On expiry, "Out of the Money" options have 0 value.

1050 call of RIL will have 0 value if RIL is at or below 1050 on expiry

Current price of RIL is 992.

The probability of RIL going above 1050 today is almost zero and thus 1050 call has no value left.

"In the Money" calls have some value on expiry.

e.g. 950 call of RIL is trading at Rs 41.

----------------------------

Options prices have two components - "time value" and "intrinsic value".

Mathematically:


"Intrinsic value" is the difference between the stock price and the call price; or 0, whichever is higher.

(For put options, "intrinsic value" is the difference between the put price and the strike price; or 0, whichever is higher.).

"Intrinsic value" changes with change in stock price, but it is unaffected by time.

"Time values" erodes as time passes and becomes 0 at expiry.

You have a 1050 call.

In you case,

Stock price - strike price
= 992 - 1050
= -58, which is less than 0.

Thus your option has no "intrinsic value".

"Time value" of your option will also be zero on expiry.
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