NISM Series XVI - Commodity Derivatives Exam Notes
Page 17 Of 36
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In the money options are automatically exercised unless the buyer of option gives an instruction of not exercising it during the time window when such intimation can be given.
At the money options are not exercised unless buyer of option gives an instruction to exercise it during the time window when exercise option can be intimated.
ATM options are those option contracts whose strike price is nearest to the underlying price on expiry and 2 contracts of strike price above that and 2 contracts of strike price below that. Thus, options with 5 strike prices are considered as ATM options.
Out of money options automatically lapses
The put-call parity theorem explains the relationship between call/put prices and the underlying commodity price. The premium for the call option can be derived from the following formula: C - P = s - (k /(1+rt))
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