NISM Series XIII Common Derivatives Certification Exam Notes
Page 135 Of 303
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Exercise of Options: To exercise is to put into effect the right to buy/sell.
Difference from Futures: Futures oblige both parties; options obligate only the seller, while the buyer has a right but no obligation.
Intrinsic Value: Amount by which the option is ITM (call: S−X; put: X−S).
Time Value: Difference between option premium and intrinsic value; higher when longer time to expiry.
Determinants of Option Premium: Spot price, strike price, volatility, time to expiry, interest rates.
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