Option Price Variation

Below is the table which shows variation in the premium of option over a period of time as I promised in the previous post.

This table shows variation of NIFTY 5000-CE-29-SEP (NIFTY Strike Price 5000, Call Option, Expiry on 29-Sept-2011) Option Premium with respect to time.

Traditional wisdom says that Time Value of this Option should drop as it approaches expiry however the same is not seen here. The explanation lies in the increased volatility. If you can recall, in the last couple of weeks we have had many 3%-5% drop/rise days due to unraveling of US and Europe crisis. I could have included Volatility Index (VIX) and also highest/lowest levels of NIFTY and many more factors but that would have only complicated the table.

As of now, the only takeaway from this table is normal things do not happen during abnormal times...;-)

Well, about next post,  initially, we will have to discuss strategies and trades that will involve only buying of options. I will have to make a post on margin calculation before we get to selling options. Yes, we will also talk about selling options... yes, yes selling options, you read it right. Yeah, I know every piece of information out there suggests that it is very risky and all that but with little bit of ingenuity the risk of it can be reduced to a manageable level if not altogether eliminated. We will see...