Option trading price calculation

The term "call" comes from the fact that the owner has the right to "call the stock away" from the seller. Option values vary with the value of the underlying instrument over time. The price of the call contract must reflect the "likelihood" or chance of the call finishing in-the-money.

The call contract price generally will be higher when the contract has more time to expire except in cases when a significant dividend is present and when the underlying financial instrument shows more volatility.

Determining this value is one of the central functions of financial mathematics. The most common method used is the Black—Scholes formula.

Importantly, the Black-Scholes formula provides an estimate of the price of European-style options. Adjustment to Call Option: When a call option is in-the-money i. Some of them are as follows:. Similarly if the buyer is making loss on his position i. Trading options involves a constant monitoring of the option value, which is affected by the following factors:. Moreover, the dependence of the option value to price, volatility and time is not linear — which makes the analysis even more complex.

From Wikipedia, the free encyclopedia. This article is about financial options. Allowing option to exercise: Option exercise price is Rs. Here, even the strike price is added to the option premium while calculation STT, so.

As observed, even though your option will be exercised at Intrinsic Value, one must square off the option to maintain a higher profit and avoid a higher STT. Hello Bharat W, Your explanation is correct except for 1 thing.

So, which closing price is taken into account to calculate settlement amount? Is it the weighted average of the last 30 minutes or the close of the last 1 minute candle? Can this be please indicated? The same as monthly options, settlement happen based on banknifty spot closing price for that day. Option expiry price calculation General.