no movement in option premium

I wish to know and had some doubts a couple of commerce that i took as we speak . I purchased 3 a lot of 51100 financial institution nifty round 35 at the moment financial institution nifty was round 51180 as i used to be anticipating the market to fall however the market was vary certain and as we speak was expiry and the premium obtained decay and the premium turned 0.5 and after that there was an enormous transfer draw back the index moved from 51240 to 51020 however there zero motion in possibility premium . there was motion in 51200 strike worth however not in 51100 . Can anybody clarify me the rationale ,Will probably be an incredible assist .

A number of components contribute to why the premium of your 51100 Financial institution Nifty put possibility didn’t transfer as anticipated, even when the underlying index moved considerably downward.

Time Decay (Theta)On the day of expiry, time decay (Theta) is extraordinarily excessive. Which means the choice’s time worth is eroding quickly, leaving little to no premium in out-of-the-money (OTM) choices just like the one you had been holding.Because the expiry approaches, the choice’s worth is pushed virtually solely by its intrinsic worth. If an possibility is OTM or solely barely ITM (within the cash), even a big transfer within the underlying index may not be sufficient to extend its premium as a result of the time worth has decayed to virtually zero.
Intrinsic ValueAt the time you bought the 51100 put possibility, the Financial institution Nifty was at 51180. On your choice to have intrinsic worth, Financial institution Nifty must fall under 51100. When the index dropped to 51020, your possibility briefly turned within the cash, however simply barely.Nevertheless, as a result of the choice expired on the identical day, the potential beneficial properties from this small intrinsic worth had been offset by the speedy time decay. Because of this you noticed little to no motion within the premium.
Bid-Ask Unfold and LiquidityNear expiry, particularly for strikes which might be near the spot worth, liquidity can dry up. This could trigger the bid-ask unfold to widen considerably, which implies that even when there’s intrinsic worth, the choice could not commerce at its theoretical worth on account of an absence of patrons or sellers keen to match the value.
Delta and GammaThe Delta of your possibility, which measures how a lot the choice’s worth will change with a change within the underlying asset, would have been fairly low as the choice was deep OTM initially. On the expiry day, particularly as an possibility approaches or barely strikes ITM, the Gamma (which measures the speed of change of Delta) could cause wild swings in Delta.Nevertheless, in your case, as a result of the choice was initially far OTM and solely barely moved ITM, the Delta remained low, that means the premium didn’t enhance considerably even with the index’s transfer.
Volatility (Vega)If implied volatility decreases on the day of expiry, it could actually additional compress the choice premium. On expiry day, implied volatility typically drops, contributing to a lower within the possibility premium.
Motion in Different StrikesThe motion within the 51200 strike worth you noticed was possible as a result of it was already at or nearer to being within the cash when the underlying index dropped. This gave it extra intrinsic worth, which was mirrored within the premium, not like your 51100 strike possibility, which had little intrinsic worth and was closely impacted by time decay.

Hello Ashutosh,

Yesterday was the Financial institution Nifty expiry day, which implies all contracts needed to expire by the top of the day. The motion you observed, the place Financial institution Nifty dropped from 51,240 to 51,020, occurred between 2:50 PM and three:30 PM. The numerous drop occurred largely after 3:15 PM.

Round 3:00 PM, the change begins calculating the typical closing worth for settlement. This common determines the ultimate settlement worth of choices. On this case, the typical closing worth got here out to be round 51,150.

As a result of the typical settlement worth was 51,150, your 51,100 Put Possibility (which might revenue if the value closed under 51,100) ended up being out of the cash (nugatory). Which means the strike worth of your possibility was increased than the settlement worth, so the choice didn’t acquire any worth and expired nugatory.

The choice premiums on expiry, particularly within the final half-hour of the market, don’t rely on LTP, however quite depend on the weighted common worth of the underlying.even I had the identical doubt and posted it in the neighborhood, you’ll be able to seek advice from this for extra understanding.