InvestorQ : Do ITM versus OTM versus ATM options make difference here?
Crowny Pinto made post

Do ITM versus OTM versus ATM options make difference here?

Answer
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2 years ago


Let us assume that the current market price of Tata Steel in the spot market is Rs.695/-

Contract

Call Premium

Put Premium

ITM or OTM

November 680 Call

24.00

-

ITM

November 680 Put

-

7.00

OTM

November 720 Call

7.50

-

OTM

November 720 Put

-

28.20

ITM

Date Source: NSE

An In-the-Money (ITM) option is one that has intrinsic value and time value. Take the case of the 680 Call Option on Tata Steel. The Call is currently quoting at Rs.24, of which Rs.15 is explained by the intrinsic value of call option (695-680). The balance Rs.9 is the time value. In case of the 680 put, the intrinsic value is zero and so the entire Rs.7 is explained by time value of money.

Let us come to the 720 strike. The 720 Put is currently quoting at Rs.28.20. Of this Rs.25 is explained by intrinsic value (720-695) and the balance Rs.3.20 is explained by time value of money. In case of the 720 call the entire Rs.7.50 is the time value of money.