I want to understand how can I calculate the minimum that a particular strike can go keeping inind the time value in it.
Example : Monday spot is at 18000 and i take 18200 Pe which is itm now if the market goes against me there will be q point in the day when this strike will stop decaying as the expiry is on Thursday.
How will you calculate that point after which you would see it decaying slowly.
thank you
Why would the time value become zero at any point before expiry? The closer you are to expiry, the closer time value is to zero. You will see that even on the expiry day, if an option is ATM, there is some noticeable time value. However, for OTM options the time value is so close to zero that one can assume it doesn’t exist.
Anyhow, all of this is for theoretical discussion. In practice, it is very difficult, if not impossible to clearly ascertain what part of the option premium can be attributed to time, volatility or any other factor.
thank you for the explanation and probably i was not able to explain it well i was saying that before expiry the option will have time value so it cannot go to zero, it will reach a point from where the decay will stop in Intraday so how to evaluate or calculate that point.
Hey, @Animiesh you can check out this link from Varisty. It explains all the greeks which help in determining the option’s price. These will help you in calculating how much decay an option will see in future days.
Link - The Option Greeks (Delta) Part 1 – Varsity by Zerodha
thank you