On Tuesday 16 Jun 2026 Nifty closed at 23,989.15. Two calls for the 30 Jun expiry sat about the same distance either side of it: the 23,500 strike, 489.15 points below the index, and the 24,500 strike, 510.85 points above. The first cost Rs 566.50 a unit. The second cost Rs 58.40. Same distance, nearly ten times the price. The cheaper call is not worse. At that close it would pay nothing, so every rupee of its price is time. The dearer one would pay 489.15 rupees at that close, and holds only 77.35 of time. Split any option price into those two parts and most of the confusion about premiums goes away.
3By the end you can
- Say whether a call or put is in, at or out of the money from its strike.
- Split an option price into intrinsic value and time value.
- Explain why a cheap out of the money option is cheap.
The idea, plainly
Every option price has two parts. Intrinsic value is what the option would pay if it expired at the current index level. Time value is the rest: the price of what could still happen before expiry.
Premium =
intrinsic value + time value
Intrinsic value comes from the strike and the index, and it is never below zero.
Call: index less strike
Put: strike less index
Never below zero
The strike against the index decides which side is in the money
Read 2 more paragraphs, 196 words
A call is in the money when its strike is below the index, because it would pay the difference if it expired now. A put is in the money when its strike is above the index. When the strike is nearest the future, the option is at the money, a rule from module F17. On this chain the future stood at 24,001.00, the spot at 23,989.15, and both point at the 24,000 strike. Every other strike is out of the money on one side and in the money on the other. An out of the money option has no intrinsic value, so its whole price is time value.
The label belongs to the moment, not to the contract. The 24,000 call is at the money when the index sits near 24,000, in the money after a rally and out of the money after a fall. Nothing about the contract changes. Only the index moves. Traders also say deep in the money or far out of the money to say how far the strike is from the index. A deep option is mostly intrinsic value. A far one is all time value.
Where the time value sits
Look at the chain. Shaded cells are in the money. Every shaded price is large, because it carries intrinsic value. The unshaded prices fall away fast as the strike moves out. The thickest time value is at the money, where the outcome is least certain, and it thins in both directions.
Shaded cells are in the money: they cost more because they carry intrinsic value
| Calls | Strike | Puts |
|---|---|---|
| Settle | Settle | |
| 488.00 | 23,600 | 89.95 |
| 448.55 | 23,650 | 101.15 |
| 413.30 | 23,700 | 113.85 |
| 378.65 | 23,750 | 128.65 |
| 344.45 | 23,800 | 144.75 |
| 313.00 | 23,850 | 162.55 |
| 282.90 | 23,900 | 182.10 |
| 254.45 | 23,950 | 203.75 |
| Spot 23,989.15 | ||
| 227.05 | 24,000ATM | 226.25 |
| 202.15 | 24,050 | 250.85 |
| 178.75 | 24,100 | 277.30 |
| 157.15 | 24,150 | 306.85 |
| 137.35 | 24,200 | 335.90 |
| 120.45 | 24,250 | 368.50 |
| 105.25 | 24,300 | 403.70 |
| 90.85 | 24,350 | 439.80 |
| 78.15 | 24,400 | 474.60 |
Shaded cells are in the money. OI is in units and volume is in contracts; L is lakh and Cr is crore.
Time value is widest at the strike and shrinks as expiry nears
| Expiry | Days left | ATM strike | Call | Put |
|---|---|---|---|---|
| 23 Jun 2026 | 7 | 24,000 | 154.40 | 171.35 |
| 30 Jun 2026 | 14 | 24,000 | 227.05 | 226.25 |
| 28 Jul 2026 | 42 | 24,100 | 409.55 | 407.85 |
Read 4 more paragraphs, 203 words
Time value also shrinks as expiry nears, reaching zero on expiry day, when only intrinsic value is left. The chart shows the 24,000 call at three points in its life. The curve with one day left sits almost on the expiry line. The curve with 14 days left rides well above it, and the gap is time value.
On expiry day an option is worth its intrinsic value and nothing else. That is why the payoff charts in module F11 and module F12 have a hinge at the strike. Before expiry the price sits above the hinge by the time value. For a buyer, time value is a cost that runs down to zero. Intrinsic value is not a cost: it rises and falls with the index.
More time means more time value, but not in proportion. The same day's at the money options for three expiries show it. For the two monthlies the at the money strike is the one nearest the future. The weekly has no future, so it is the one nearest the parity forward.
The longest expiry has 6 times the days of the shortest and only 2.7 times the call price. Modules F22 and F15 follow this further.
Worked example: the 16 Jun 2026 chain, strike by strike
Take the 30 Jun expiry chain as it closed on 16 Jun. The spot was 23,989.15. For each strike we split the settle price into its two parts, calls first. ITM, ATM and OTM mean in, at and out of the money. Intrinsic value is measured from the spot.
| Call strike | Settle | Intrinsic | Time value |
|---|---|---|---|
| 23,500 ITM | 566.50 | 489.15 | 77.35 |
| 24,000 ATM | 227.05 | 0 | 227.05 |
| 24,500 OTM | 58.40 | 0 | 58.40 |
| Put strike | Settle | Intrinsic | Time value |
|---|---|---|---|
| 23,500 OTM | 69.25 | 0 | 69.25 |
| 24,000 ATM | 226.25 | 10.85 | 215.40 |
| 24,500 ITM | 555.05 | 510.85 | 44.20 |
Read 2 more paragraphs, 118 words
At 24,000 the spot sits 10.85 below the strike, so the put has a sliver of intrinsic value and the call has none. Measured from the future, which was 24,001.00, the two would be almost equal. That is why the at the money row is a label by convention. Both options are nearly pure time value.
A small oddity for readers who check the arithmetic. The 25,000 put settled at Rs 1,008.30, which is 2.55 below its intrinsic value of 1,010.85 measured from the spot. It is not an error. The future stands above the spot, the put is priced off the future, and the carry takes a little off a deep in the money put.
3 terms this section turns on
The common mistake
The claim: The out of the money call costs only a few rupees, so it is a cheap way to own the Nifty.
Cheap in rupees is not cheap in odds. The 24,500 call cost Rs 58.40, Rs 3,796.00 a lot, and all of it is time value. To get that back by expiry Nifty had to close above 24,558.40, which is 2.37% above the close, in 14 days. The 23,500 call cost Rs 36,822.50 a lot and needed a rise of only 0.32%. The price is the market's answer to how likely the right is to pay. Low price, low odds. Judge a premium by what the index must do for it to be earned back.
Key takeaways
- Premium equals intrinsic value plus time value.
- A call is in the money when its strike is below the index.
- A put is in the money when its strike is above the index.
- An out of the money option is all time value.
- Time value is widest at the money and falls to zero at expiry.
- Cheap in rupees is not cheap in odds.
Before you trade. Derivatives trading carries a high risk of loss. SEBI's study "Profitability of Individual Traders in the Equity Derivatives Segment (FY25 to FY26)" (August 2026) found that 87.7% of individual traders in equity F&O made net losses in FY26, with aggregate net losses of Rs 91,685 crore. Read the SEBI study