Thread by @niki_poojary

𝐁𝐚𝐬𝐢𝐜𝐬 𝐨𝐟 𝐃𝐞𝐫𝐢𝐯𝐚𝐭𝐢𝐯𝐞𝐬 - 𝐏𝐚𝐫𝐭 𝐈𝐈𝐈

Topics covered:

• Moneyness of an Option

• Intrinsic value & Time value of an option

• Why Intrinsic value & time value matters

• Implied Volatility

Time for a 🧵

Curated in collaboration with
@AdityaTodmal

• Moneyness of Option contract:
• ITM option
• ATM option
• OTM option

• Intrinsic Value of an option:
• Positive payoff for the buyer

• Intrinsic value of ITM CE options = Spot- Strike

• Intrinsic value of an:
i) ITM for a CE option: Positive
ii) ATM for a CE option: Zero
• Intrinsic value is never Negative

• Option Chain data representing ATM, OTM & ITM

• Example of Intrinsic value of a CE option

• Example of Intrinsic value of a PE option

• Lets not mess up our heads trying to understand greeks
• Lets understand things that are useful for trading

• Time value is the additional amount over & above Intrinsic value
• Options having higher time to expiration has higher Time value

• How Intrinsic value & Time value helps traders to understand the RR of options

• Why OTMs & ATMs have lesser value than ITMs

• Logic behind hero ya zero trade

• ITM option premium = Intrinsic value +Time value

• Implied volatility:
• Volatility of a stock over the life of an option
• IV impacts to both CE & PE in a similar fashion

• When does IV rise?
• Stock is more volatile
• Stock is near to its earnings release
• Major events viz. elections, budget etc.

• This was a part III 🧵 on derivatives

• You can check out the 2nd part here 👇

If you have missed to check the Part I on Derivatives

• You can check out the 1st part here - Basics of Derivatives👇


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• Happy learning 🤓 to everyone!

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