What an option costs - and the Greeks in plain words

Real value plus hope

Every option premium has two parts:

• Intrinsic value - what the option would be worth if you used it right now. A NABIL 520 call with NABIL at 549.20 is worth at least 549.20 − 520 = Rs 29.20. An out-of-the-money option has zero intrinsic value.
• Time value - everything above that: what buyers pay for the chance the option becomes worth more before expiry. The 520 call costs about Rs 34.1, so its time value is about Rs 4.9. The 560 call (Rs 9) is all time value.

Four things set the price: the share price against the strike, time left, how much the share is expected to swing (volatility), and to a small degree interest rates. The "Greeks" are just names for how sensitive the premium is to each.

Delta - how much the option moves with the share

Delta is how many rupees the option gains when the share rises Rs 1. Our 30-day NABIL 550 call has a delta of about 0.54: if NABIL rises Rs 10, the call rises about Rs 5.4. Calls have delta between 0 and 1; puts between 0 and −1.

• Deep in the money → delta near 1: the option moves almost like the share.
• At the money → about 0.5.
• Far out of the money → near 0: the 580 call (delta about 0.2) barely moves when NABIL ticks up.

Traders also read delta as a rough probability of ending in the money: a 0.2-delta option has about a one-in-five chance. That one fact explains why cheap options are cheap.

Gamma - how fast delta changes

Gamma measures how quickly delta itself changes as the share moves. It's largest for at-the-money options close to expiry. With 30 days left, the 550 call's delta is 0.30 at NABIL 530 and 0.77 at 570. With only 7 days left it swings from 0.10 to 0.91 over the same range - the option lurches between "almost worthless" and "almost a share". High gamma near expiry is why expiry days are wild in markets that have F&O.

Theta - the daily melt

Theta is how much value the option loses each day if nothing else changes. Time value has to reach zero by expiry, and it doesn't melt evenly - it speeds up at the end:

Theta is the option buyer's enemy and the seller's income. Our 550 call loses about Rs 0.25 a day now - Rs 125 a lot, every day, whether you're watching or not - and more each day after.

Vega - fear is expensive

Vega is how much the premium changes when the market's expected volatility changes. When people expect big moves - before results, a budget, an election, a crash - options get more expensive, even if the share price hasn't moved at all:

This creates a classic beginner's trap: buying a call just before results, being right about the direction, and still losing - because once the news is out, volatility collapses and the premium shrinks (the "volatility crush"). The volatility the market is pricing in is called implied volatility; lesson 12 shows where to read it.

The Greeks, in one table

Worked out with the Black-Scholes model - the standard textbook formula - on NABIL's price of 31 Oct 2026, at 20% volatility and 6% interest. Real option prices also depend on supply and demand.