Section 5 · Value
Intrinsic and time value
Every premium splits into two parts: what exercising now would be worth, and what is paid for the time left.
Sample Indexspot 4,865.00previous close 4,851.00expiry in 14 dayslot 45 unitsall figures invented
| Calls | Puts | |||
|---|---|---|---|---|
| LTP | Strike | LTP | ||
| call in the money | 173.05 | 4,700 | 8.05 | |
| call in the money | 130.10 | 4,750 | 15.10 | |
| call in the money | 91.70 | 4,800 | 26.70 | |
| call in the money | 59.55 | 4,850 | 44.55 | |
| 34.80 | 4,900 | 69.80 | put in the money | |
| 17.85 | 4,950 | 102.85 | put in the money | |
| 7.75 | 5,000 | 142.75 | put in the money | |
| 2.75 | 5,050 | 187.75 | put in the money | |
Excerpt: last traded prices; the split is below.
On a narrow screen this table scrolls sideways; the strike column is in the middle.
Premium = intrinsic + time value
Intrinsic value is what the option would be worth if exercised now: spot − strike for a call, strike − spot for a put, never below zero. Time value is the rest of the premium. For the 4,850 call: intrinsic 4,865.00 − 4,850 = 15.00, time value 59.55 − 15.00 = 44.55.
| Strike | Call LTP | Call intrinsic | Call time value | Put LTP | Put intrinsic | Put time value |
|---|---|---|---|---|---|---|
| 4,700 | 173.05 | 165.00 | 8.05 | 8.05 | 0.00 | 8.05 |
| 4,750 | 130.10 | 115.00 | 15.10 | 15.10 | 0.00 | 15.10 |
| 4,800 | 91.70 | 65.00 | 26.70 | 26.70 | 0.00 | 26.70 |
| 4,850 | 59.55 | 15.00 | 44.55 | 44.55 | 0.00 | 44.55 |
| 4,900 | 34.80 | 0.00 | 34.80 | 69.80 | 35.00 | 34.80 |
| 4,950 | 17.85 | 0.00 | 17.85 | 102.85 | 85.00 | 17.85 |
| 5,000 | 7.75 | 0.00 | 7.75 | 142.75 | 135.00 | 7.75 |
| 5,050 | 2.75 | 0.00 | 2.75 | 187.75 | 185.00 | 2.75 |
Specimen premiums split into intrinsic and time value (spot 4,865.00).
Time value is largest near spot (44.55 at 4,850 in the specimen) and smaller further away. With zero interest, the call and the put at one strike carry the same time value, which the table shows.
At expiry
At expiry time value is gone and an option is worth its intrinsic value only. A buyer of the 4,850 call at 59.55 needs the index above 4,909.55 at expiry to get the premium back; below the strike the whole premium is lost.