Hi VaibhavPRO
You have a lot of interesting questions in your post.
Here is one way to see the value of an option :
The example is made on a future but you can also apply it to a stock.
The difference between the futures price and the strike price is ALWAYS equal to the difference between the prices of the put and the call.
EXAMPLE :
Future Sept. Coffe at : 135.20
Strike price of the put : 160.00
Put strike minus Future price : 160.00 - 135.20 = 24.80
24.80 is the difference between the call of 8.50 and the put 33.30 : 33.30 - 8.50 = 24.80
Look at the strike price and then look at the option prices.
They must be all perfectly in line. If they are not they will be overpriced or under priced.
If overpriced, sell them and if under priced buy them.
If the option is overpriced, you can be sure, that the implied volatility is high.
To understand more about implied volatility and long term volatility ( statistical volatility ) you should once google for : Black Scholes formula and take your time to read about that subject.
Take care
DanPickUp
You have a lot of interesting questions in your post.
Here is one way to see the value of an option :
The example is made on a future but you can also apply it to a stock.
The difference between the futures price and the strike price is ALWAYS equal to the difference between the prices of the put and the call.
EXAMPLE :
Future Sept. Coffe at : 135.20
Strike price of the put : 160.00
Put strike minus Future price : 160.00 - 135.20 = 24.80
24.80 is the difference between the call of 8.50 and the put 33.30 : 33.30 - 8.50 = 24.80
Look at the strike price and then look at the option prices.
They must be all perfectly in line. If they are not they will be overpriced or under priced.
If overpriced, sell them and if under priced buy them.
If the option is overpriced, you can be sure, that the implied volatility is high.
To understand more about implied volatility and long term volatility ( statistical volatility ) you should once google for : Black Scholes formula and take your time to read about that subject.
Take care
DanPickUp
Hi Dan,
Example went bouncer for new guy like me.
Appreciate if you can explain it with Nifty prices.
Let us take current prices of Nifty.
Nifty Spot :4940
June 5200call : Rs 55
June 4700 Put : Rs94
Nifty June Future :4936