Capitalmind
Capitalmind
Actionable insights on equities, fixed-income, macros and personal finance Start 14-Days Free Trial
Actionable investing insights Get Free Trial
Premium

Optionalysis: The Strange Negative Time Value In the Nifty and the Opportunities It Brings

Why are put options expiring on Dec 24 trading with NEGATIVE time value? This is surprising, but not quite if you understand the logistics of how markets operate.

Let's see right now, as the index is at 8277, how the put options are behaving:

The 8400 put trades at 116, but the underlying index is at 8277.

The intrinsic value of the put is the strike price minus the index value, which is 8400 minus 8277 = 123.

And still, the option trades at 116!

It gets even more strange with other options. The 8600 put trades at 276, which is a break-even price of 8324. And the index at 8277 means there's a 47 point spread!

Let's see this another way. If you bought the 8600 put right now and the index, you will make at least Rs. 47 per Nifty risk free! (Well there is some risk, like if the NSE defaults, but that is so tiny today)

Like our content? Join Capitalmind Premium.

  • Equity, fixed income, macro and personal finance research
  • Model equity and fixed-income portfolios
  • Exclusive apps, tutorials, and member community
Subscribe Now Or start with a free-trial