Learn strike price, premium, expiry — Hinglish notes

5.2.2 · Stock-Market › Options Basics

Core Concept

Har option contract mein teen fundamental parameters hote hain jo uski terms define karte hain: strike price (wo price jis par tum buy/sell kar sakte ho), premium (jo tum option ke liye pay karte ho), aur expiry date (jab wo right expire ho jata hai). Ye teen components kisi option ki value aur trading strategy dono decide karte hain.

1. Strike Price (Exercise Price)

Strike Price Kyun Matter Karti Hai

Strike price decide karti hai kisi option ki intrinsic value hai ya nahi:

Call Options ke liye:

In-the-Money (ITM): Market price > Strike price (exercise karna profitable hai)
At-the-Money (ATM): Market price ≈ Strike price (break-even)
Out-of-the-Money (OTM): Market price < Strike price (exercise karein toh loss)

Put Options ke liye:

In-the-Money (ITM): Market price < Strike price (exercise karna profitable hai)
At-the-Money (ATM): Market price ≈ Strike price (break-even)
Out-of-the-Money (OTM): Market price > Strike price (exercise karein toh loss)

2. Premium (Option Price)

Premium Components

Premium do parts mein banti hai:

$Premium = Intrinsic Value + Time Value$

Intrinsic Value: Abhi exercise karne par immediate profit (upar cover kiya gaya hai)

Time Value: "Hope premium"—jo tum pay karte ho us possibility ke liye ki option expiry se pehle aur profitable ho jaye

Premium Kya Determine Karta Hai?

Premium chhe factors par depend karta hai (future notes mein detail mein):

Strike price (K): Current price ke kareeb → higher premium
Current price (S): Higher intrinsic value → higher premium
Time to expiry (T): Zyada time → higher time value
Volatility (σ): Zyada volatile stock → higher premium
Interest rates (r): Higher rates → premium par thoda sa asar
Dividends: Expected dividends → call/put ko alag tarah se affect karta hai

3. Expiry Date (Expiration)

Expiry Kyun Matter Karti Hai

Time decay (theta): Jaise expiry paas aati hai, time value ghisti hai—options har din value kho dete hain chahe stock move na kare
Exercise decision: Expiry par decide karna hota hai exercise karna hai (agar ITM hai) ya lapse hone dena hai (agar OTM hai)
Settlement: Cash-settled options automatically expiry par closing price ke basis par settle ho jaate hain

Time to Expiry Ka Impact

Jitna zyada time bacha ho, time value utni zyada:

$Time Value \propto T$

(Roughly square-root relationship follow karta hai—time double karne se time value double nahi hoti)

Square root kyun? Random walk mathematics se aata hai: price moves ka standard deviation $T$ ke saath scale karta hai.

Common mistake "Main Expiry Tak Wait Kar Lunga Decide Karne Ke Liye"

Galat soch: "Stock mere favor mein expiry tak move kar sakta hai, toh main hold karunga."

Kyun sahi lagta hai: Options tumhe wait and see karne dete hain—kyun saara time use na karo?

Fix: Time decay buyer ke taur par tumhari friend nahi hai. Har din jo tum ek OTM ya slightly ITM option hold karte ho, tum theta ki wajah se paise khote ho. Agar stock 75% expiry time tak tumhari direction mein nahi gaya, toh time value loss aksar kisi bhi potential gain se zyada ho jaata hai.

Better approach: Price targets aur time limits set karo. Agar tumhara thesis expiry ke halfway tak play out nahi hua, toh losses cut karne par consider karo.

Example: Tum ek 30-day call ₹50 mein kharidте ho. Din 20 par wo ₹15 ki hai (₹35 down). Chahe stock aakhri 10 dino mein tumhari direction mein move kare, tumhe ₹35 loss plus remaining time decay overcome karne ke liye BAHUT BADA move chahiye. Probability kehti hai: ise close karo.

Sab Kuch Ek Saath Jodna

Worked example Complete Scenario: 60-Din Ka Safar

Wipro Stock = ₹400 Tumne kharida: Call option, K = ₹420, Premium = ₹15, Expiry 60 dino mein Din 0 (Purchase):

Intrinsic = max(400 - 420, 0) = ₹0
Time Value = ₹15
Tumhara cost = ₹15 × lot size

Din 20 (Wipro → ₹430):

Intrinsic = max(430 - 420, 0) = ₹10
Premium = ₹22
Time Value = 22 - 10 = ₹12
Tumhara P&L = (₹22 - ₹15) = +₹7 profit (47%)

Premium ₹22 kyun hai, ₹10 nahi?

40 din baaki = abhi bhi significant time value
Stock tumhare favor mein move kar raha hai = aur upar ja sakta hai Din 50 (Wipro → ₹425):
Intrinsic = max(425 - 420, 0) = ₹5
Premium = ₹7
Time Value = 7 - 5 = ₹2 (decay accelerate ho rahi hai)
Tumhara P&L = (₹7 - ₹15) = -₹8 loss (53%)

Expiry Din 60 (Wipro → ₹435):

Intrinsic = max(435 - 420, 0) = ₹15
Premium = (koi time value nahi bachi)
Tumhara P&L = (₹15 - ₹15) = ₹0 break-even

Key lesson: Chahe stock ₹35 (8.75%) badha, tum sirf break-even par raho kyunki time decay tumhare gains kha gayi.

Strike, Premium, aur Expiry Ka Aapas Mein Interaction

Factor	Effect on Premium	Kyun?
Strike spot ke kareeb	Higher premium	ITM hone ka zyada chance
Strike spot se door	Lower premium	ITM hone ki kam possibility (OTM options "lottery tickets" hain)
Expiry mein zyada time	Higher premium	Favorable moves ka zyada mauka
Expiry mein kam time	Lower premium	Time decay—movement ka kam chance
Stock strike ki taraf move kare	Premium increases	Rising intrinsic value + hope
Stock strike se door jaye	Premium decreases	Falling intrinsic value

Recall Ek 12-Saal Ke Bacche Ko Samjhao

Socho tum PlayStation 5 kharidna chahte ho, lekin sure nahi ho ki price badhegi ya ghaTegi. Tumhara dost tumhe ek deal offer karta hai:

"Mujhe abhi ₹500 do, aur main tumhe RIGHT dunga ki tum agle 30 dino mein kabhi bhi mera PS5 ₹25,000 mein khareedo."

₹25,000 = Strike Price: Ye wo price hai jo tumhare ticket par likhi hai—tum PS5 itne mein khareede sakte ho
₹500 = Premium: Ye hai jo "option" tumhe aaj cost karta hai
30 din = Expiry: 30 dino ke baad tumhara ticket bekar hai

Scenario 1: PS5 ki price ₹30,000 ho jaati hai (shortage!)

Tum ticket use karte ho, ₹25,000 mein kharidते ho, ₹30,000 mein bechte ho = ₹5,000 profit
₹500 ticket minus karo = ₹4,500 net profit

Scenario 2: PS5 ₹22,000 ho jaati hai (sale!)

Tum apna ticket use nahi karte (₹25,000 mein kyun khareedo jab market ₹22,000 hai?)
Tum apna ₹500 ticket price khote ho, lekin bas ITNA hi khote ho Scenario 3: PS5 29 dino tak ₹25,000 par rehti hai, phir din 30 par ₹26,000 ho jaati hai
Tum ise use karke ₹1,000 profit kar sakte ho, lekin tumne ₹500 pay kiya tha, toh net = ₹500 gain Strike price tumhari "frozen" price hai, premium tumhara "ticket cost" hai, aur expiry tumhari deadline hai. Exactly aise hi stock options kaam karte hain!

Connections

Call and Put Options Overview – Ye teen parameters dono par apply hote hain
Intrinsic vs Time Value – Premium components mein deeper dive
Moneyness (ITM, ATM, OTM) – Strike ka current price se kya relation hai
Time Decay (Theta) – Expiry itna kyun matter karti hai
Option Greeks – In parameters ke liye mathematical sensitivity
Black-Scholes Model – Formula jo in inputs se options price karta hai

Summary

Har option contract ke teen pillars:

Strike Price (K): Wo fixed price jis par tum exercise kar sakte ho—intrinsic value determine karta hai
Premium (P): Upfront cost—tumhara maximum loss, intrinsic + time value se bana
Expiry (T): Deadline—time decay paas aane par accelerate hoti hai

Key insight: Expiry tak premium hamesha ≥ intrinsic value hota hai. Fark time value hai, jo "hope" reflect karti hai ki option aur profitable ho jaayega. Time decay option buyers ki dushman hai aur option sellers ki dost.

#flashcards/stock-market

Har option contract ke teen fundamental parameters kya hain? :: Strike price (exercise price), Premium (option price), aur Expiry date

Strike price kya hoti hai?

Wo predetermined fixed price jis par option holder underlying asset ko buy (call) ya sell (put) kar sakta hai agar wo exercise kare

Call option ke liye intrinsic value kya hai?

max(S - K, 0) jahan S spot price hai aur K strike price hai. Ye wo immediate profit hai agar abhi exercise karo

Put option ke liye intrinsic value kya hai?

max(K - S, 0) jahan K strike price hai aur S spot price hai

Call option in-the-money (ITM) kab hota hai?

Jab market price strike price se zyada ho (S > K)

Put option in-the-money (ITM) kab hota hai?

Jab market price strike price se kam ho (S < K)

Option premium kis cheez se bana hota hai?

Intrinsic Value + Time Value

Options mein time value kya hoti hai?

Premium ka wo hissa jo option ke expiry se pehle aur profitable hone ke potential ko reflect karta hai. Ye Premium minus Intrinsic Value hota hai

Time value exist kyun karta hai?

Kyunki zyada time se stock price ke favorably move karne ke zyada mauke hote hain, aur option holder ko exercise karne ya walk away karne ka right milta hai

Expiry par time value ka kya hota hai?

Time value zero ho jaati hai. Expiry par, option premium sirf intrinsic value ke barabar hota hai

Options mein theta kya hai?

Time decay ki rate—har din expiry paas aane par option value kitni ghatti hai

Kya time decay linear hoti hai?

Nahi, time decay expiry paas aane par accelerate hoti hai. Aakhri kuch din sabse fast decay dekhte hain

Option buyer ke liye maximum loss kya hai?

Pay kiya gaya premium. Stocks ke unlike, tum apne initial investment se zyada nahi kho sakte

Zyaatar Indian equity options kab expire hote hain?

Mahine ke last Thursday ko

Agar ek call option mein K = ₹100 hai, stock ₹110 par hai, aur premium ₹15 hai, toh time value kya hai?

Intrinsic value = 110 - 100 = ₹10, toh time value = 15 - 10 = ₹5

Expiry se pehle premium aksar intrinsic value se zyada kyun hota hai?

Kyunki time value intrinsic value mein add hoti hai, jo aur favorable price movement ki possibility reflect karti hai

Out-of-the-money option ka expiry par kya hota hai?

Ye worthless expire ho jaata hai zero value ke saath, aur buyer poora pay kiya gaya premium kho deta hai