STT and Option Prices

Submitted by Deepak Shenoy on 12 November 2010 - 2:41pm
Sorry, you need to install flash to see this content.

Why do in-the-money options seem to have no time value?

Options have a time value component to account for the time remaining to expiry, and an "intrinsic" value - the difference between the stock and the strike price (called the "ITM" or in-the-money amount). On expiry day, with nearly no time remaining, you would expect the option to trade at it's intrinsic value, or whereabouts. Yet, most in-the-money options trade below intrinsic value!

The reality is that a regulatory cost, the Securities Transaction Tax (STT), eats up too much that it leaves options quoting at less than intrinsic value. Deepak Shenoy tells you how.

(6 minutes)

Comments

Post new comment

The content of this field is kept private and will not be shown publicly.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Allowed HTML tags: <i> <em> <b> <strong> <cite> <code> <ul> <ol> <li> <dl> <dt> <dd> <img>
  • Lines and paragraphs break automatically.
  • You may quote other posts using [quote] tags.
  • Twitter-style @usersnames are linked to their Twitter account pages.
  • Twitter-style #hashtags are linked to search.twitter.com.

More information about formatting options

CAPTCHA
To ensure you are not an automated spammer.
12 + 4 =
Solve this simple math problem and enter the result. E.g. for 1+3, enter 4.
Type the characters you see in this picture. (verify using audio)
Type the characters you see in the picture above; if you can't read them, submit the form and a new image will be generated. Not case sensitive.