Concept of the Day:Intrinsic value

The intrinsic value of an option is the value it would have if exercised immediately. It is calculated as the difference between the strike price and the price of the underlying asset. Note that it can never be negative - it is either positive or zero.

Why does it matter?

1. It shows the actual profit a trader would make by exercising the option on the expiration date.

2. Helps determine if an option is:

• ● In-the-Money (ITM): Has intrinsic value.
• ● Out-of-the-Money (OTM): Has no intrinsic value and will expire worthless.
• ● At-the-Money (ATM): Has no intrinsic value and will expire worthless.

Examples of Moneyness:

Call Option (Right to Buy):

A trader holds a Reliance Industries call option with a strike price of ₹2000, which gives him the right to buy shares of Reliance at ₹2000 on the expiry date, regardless of where the price ends on expiration.

On the expiry date:

• ● If Reliance Industries rises to, say, ₹2500, the intrinsic value is ₹500 as the call is In-the-Money (ITM).
• ● If Reliance Industries falls to, say, ₹1500, the intrinsic value is zero as the call is Out-of-the-Money (OTM).
• ● If Reliance Industries trades at ₹2000, the intrinsic value is zero as the call is At-the-money (ATM).

Put Option (Right to Sell):

A trader holds a Reliance Industries put option with a strike price of ₹2000, which gives him the right to sell shares of Reliance at ₹2000 on the expiry date, regardless of where the price ends on expiration.

On the expiry date:

• ● If Reliance Industries falls to, say, ₹1500, the intrinsic value is ₹500 as the put is In-the-Money (ITM).
• ● If Reliance Industries falls to, say, ₹2500, the intrinsic value is zero as the put is Out-of-the-Money (OTM).
• ● If Reliance Industries trades at ₹2000, the intrinsic value is zero as the put is At-the-money (ATM).

Disclaimer: This information is for educational purposes only. Trading in Futures and Options involves substantial risk and is unsuitable for all investors. Past

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