What's inside an option's price?

Expiry is easy. Before expiry is the interesting part.

In Module 1 we mostly looked at expiry day, where an option is worth exactly its intrinsic value. But you'll trade options on the other days too — and on those days a call can go down even when NIFTY goes up. Confusing? Not once you see what the price is made of.

Two layers

Premium = intrinsic value + time value

• Intrinsic value is the part you could "cash in" right now (how far ITM it is).
• Time value is what people pay for the chance the option becomes more valuable before expiry.

Run your finger along the white line:

• Far left (deep OTM): price close to zero. Little intrinsic, little chance.
• At the strike (ATM): price is all time value — and the most time value anywhere.
• Far right (deep ITM): price ≈ intrinsic value. It behaves almost like owning NIFTY.

The four forces

Before expiry, four things change an option's price. Each has a "Greek" that measures how much:

A day in the life of a call

Say you buy the 22400 CE at ₹175 with 7 days left. The next day three things happen at once: NIFTY rises 100 points, one day passes, and the market calms down. Each force pulls the price in its own direction:

1. 1

   Delta pulls it up

   NIFTY +100 with delta ≈ 0.53 → about +₹53 (a bit more, thanks to gamma).

2. 2

   Theta pulls it down

   One day passes → about −₹13.5 of time value melts away.

3. 3

   Vega pulls it down

   Volatility drops 2% → vega ≈ 12 → about −₹24.

4. 4

   Net result

   Roughly +53 − 13.5 − 24 ≈ +₹16. You were right on direction, but most of the gain was eaten by time and falling volatility.

That's the whole of Module 2 in one example. The next lessons take each force one at a time, with charts you can explore — and end with a playground where you move all of them yourself.