NISM Certifications · NISM-Series-VIII: Equity Derivatives · Introduction to Options
A Nifty call option with strike 22,000 is trading at a premium of Rs 180 when Nifty spot is 22,100. What is the time value of this option?
The time value is Rs 80. The call's intrinsic value is spot minus strike, which is 22,100 minus 22,000, or Rs 100. Subtracting this from the Rs 180 premium leaves Rs 80 as time value, the part of the premium reflecting remaining time and volatility.
- ARs 80Correct
- BRs 100
- CRs 180
- DRs 280
Explanation
Intrinsic value of the call = spot - strike = 22,100 - 22,000 = Rs 100. Time value = premium - intrinsic value = 180 - 100 = Rs 80. Rs 280 results from wrongly adding intrinsic value to premium, and Rs 100 is just the intrinsic value.
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