does it matter if the option is American or European? Now because Venu carries addition risk of getting exercised on any day as opposed to the day of the expiry, the premium he would need is also higher (so that he is compensated for the risk he takes). Time value is the amount the option trader is paying for a contract above its intrinsic value, with the belief that prior to expiration the contract value will increase because of a favourable change in the price of the underlying asset. For this reason, American options are always more expensive than European Options. Of course, unlike the Deewaar brothers there is no view on morality when it comes to Options trading; rather the view is more on markets and what one expects out of the markets.
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The binomial pricing model traces the evolution of the option's key underlying variables in discrete-time.
Height of the binomial tree deltaT : T / n; up : exp(sigma * sqrt(deltaT p0 : (up*exp(-q * deltaT) - exp(-r * deltaT) / (up2 - 1 p1 : exp(-r * deltaT) - p0; ' initial values at time T for i :. So all options in India are now European in nature, which means the buyer can exercise his option based on the spot price on the expiry day. However, do note the profit remains constant.6.35/. He would experience a loss only after he losses the entire premium. In the back of the strong rumor, the land prices shoots up and hence Ajay decides exercise his right, clearly Venu will be obligated to deliver the land to Ajay (even though he is very clear that the land price has gone up because. We will now proceed to understand the Put Options. Please dont do that, I would suggest you stay alert to notice the subtle difference and the huge impact it has on the P L of the call option writer.