Learn With ETMarkets: What are the components of options premium
The option premium pricing for ITM, ATM, and OTM is based on intrinsic and extrinsic values. Extrinsic value is determined by the Black Scholes model and the difference between the current market price and the strike price. ATM options have the highest extrinsic value while OTM options have the lowest. For ITM options, the premium is higher as the difference between CMP and strike price increases. Intrinsic values are added to ITM options. The premium for each option is determined by adding intrinsic and extrinsic values. Other factors affecting premium prices will be discussed in the next lesson.
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