Option premiums are wrong

as per knowledge, In The Money
Option Premium > (SPOT price - strike price) (for CE)
Option Premium > (strike price - SPOT price) (for PE)

in the above image,
NIFTY spot is 17,161
I was expecting the option premium as below
NIFTY MAR 18000 PE > (18000-17161) (= 839)

BUT option premium is below 839. logically it makes no sense. kindly help me understand where i went wrong.

Thank you


You are seeing nifty spot prices. Nifty futures was at 50 points premium at this point.
If the premium was 839 there would be an opportunity for arbitrage gain by using the following trade.

Buy futures around 17210
Sell 18000 put at 839 ( as per your calculation)

After this you take any expiry, you will end up in profit.


Option pricing follows the futures price not the spot price. Only after the expiry, options are settled based on spot price.

1 Like