Part3 Institutional Trading

Understanding Option Premiums
The premium (price of the option) is determined by:

🧮 Intrinsic Value + Time Value
Intrinsic Value: The actual amount by which an option is in the money.

Time Value: Additional value based on time until expiry and volatility.

📈 Factors Affecting Premiums (Option Pricing):
Stock Price

Strike Price

Time to Expiry

Volatility (Implied Volatility)

Interest Rates

Dividends

This pricing is calculated by complex models like Black-Scholes.

Options Greeks: Measuring Risk
"Greeks" help traders understand the sensitivity of an option’s price to various factors:

Greek Measures...
Delta Sensitivity to price change of the underlying
Gamma Change in delta for each ₹1 move
Theta Time decay—loss in value per day
Vega Sensitivity to volatility
Rho Sensitivity to interest rate changes