–          As long as there is some chance that an option could have some exercise value prior to expiration, the at the money option would sell for a price greater than zero.


–          The same argument would apply to out of the money options, though the market price is likely to be lower since the underlying security must increase more in value.

–          In the money options also sell for more than their exercise value as the holder stands to gain at exerciser the benefit of possible interim increases in underlying asset or security value, but is not at risk for all possible reductions in underlying asset value.

–          Therefore option market value is always above exercise value. The amount by which is called the option premium.

The following two tabs change content below.
We, at BMS.co.in, believe in sharing knowledge and giving quality information to our BMS students. We are here to provide and update you with every details required by you BMSites! If you want to join us, please mail to [email protected]

Leave a reply

Your email address will not be published. Required fields are marked *



BMS.co.in is aimed at revolutionising Bachelors in Management Studies education, also known as BMS for students appearing for BMS exams across all states of India. We provide free study material, 100s of tutorials with worked examples, past papers, tips, tricks for BMS exams, we are creating a digital learning library.

Disclaimer: We are not affiliated with any university or government body in anyway.

©2020 BMS - Bachelor of Management Studies Community 

A Management Paradise Venture

Ask Us On WhatsApp

Log in with your credentials


Forgot your details?


Create Account