However, the quite far from ATM options may sometimes show some abnormal behaviour due to lack of liquidity. Near maturity of options also, some abnormality may be seen. For example, today almost for the whole day, the 5400CE July (that was expiring today) showed about Rs 5 to 6 less value than even its intrinsic value. To illustrate, when the Nifty spot was 5495, the 5400CE July was only about Rs. 89 to 90. It was less than even the Nifty July Future which at that time was about Rs. 5492 or so.
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All ITM options show less than their intrinsic value towards expiry time to account for the STT that has to be paid by the seller. All outstanding ITM options have to be exercised automatically and compulsorily. The STT on exercise is calculated on the Contract value and not on premium. At 5500 the STT is 50*5000*.00125 = 312/- per lot which is appr 5-6/- per lot.
