NISM Certifications · NISM-Series-VIII: Equity Derivatives · Introduction to Options
Nifty spot is 22,000. A Nifty call option with strike 21,800 is trading at a premium of 260. What is the time value of this call option?
The time value is 60. The call is in the money with intrinsic value of 200 (22,000 minus 21,800). Time value equals the premium of 260 less intrinsic value of 200, which gives 60.
- A60Correct
- B200
- C260
- D460
Explanation
Intrinsic value of a call = spot minus strike = 22,000 - 21,800 = 200. Time value = premium minus intrinsic value = 260 - 200 = 60. The option 200 is only the intrinsic value, and 460 wrongly adds the two instead of subtracting.
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