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Abhiind123

Why do people buy in the money call options?

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In The Money Options are the Options which have Intrinsic value, these Options will have some Intrinsic Value post-expiration so In money options will have a higher probability of winning as compared to OTM Option where premium just has extrinsic value. If we look at the Option chain & understand the mechanism of Option Pricing & Option Greeks we can understand why exactly participants In Money Options would be an edge. 1. Delta of In the Money Option is high as compared to OTM Options (Delta is the rate of change in Premium due to 1 point move in Underlying). 2. THETA of In The Money Option is less compared to At the Money Option (How much Option Decay’s if we hold it for one day) Eg- IF we look at NIFTY Option Chain, NIFTY trading at 17847. 17700 (ITM CE) Delta is 0.7, 17850 Delta is 0.5 & 18000 (OTM CE) Delta is 0.3. (ATM CE) which means if NIFTY goes up by 10pts 17700 CE (ITM) premium will go up by 7rs, 17850 CE (ATM) premium will go up by 5rs & 18000 CE (OTM) will go up by 3rs which indicates if a directional move happens in our favor ITM premium will increase faster as compared to an ATM & OTM. 2. THETA of In The Money Option is low as compared to AT the Money Option, Analyzing BANKNIFTY Option Chain, trading at 37820, 37800 (ATM CE) Theta is -31.09 vs 37400 (ITM CE) Theta is -28.74 so if we hold these Options for 1 more Day ATM CE will lose by -31.09 rs vs ITM CE will lose -28.74 rs. Conclusion, 1. ITM Options will higher probability of winning as there exists Intrinsic Value in it 2. Delta Of ITM is higher as compared to ATM & OTM 3. Theta of In the Money Options is less compared to At the Money. We can analyze any FnO Instrument eg Reliance Option Chain, NTPC Option Chain & the other FnO Stocks Option Chain & Simulate the Impact of Price, Theta & Vega and analyze how which Option Premiums give us significant move

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