STT and Option Prices

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)