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

• 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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• 🔁 the first tweet and help others find this 🧵

• Happy learning 🤓 to everyone!
• I curate threads on trading & finance 📊🤑

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