Identifier: C4T1L4 | Revision: 2026-10-26 | Planned study: 10–15 minutes, excluding extended practice.

Decision and objectives

Choose whether the method addresses this lesson’s task before placing an order. Objectives: 1. Classify call and put moneyness. 2. Reconcile premium and intrinsic value. 3. Explain why a profitable right can be an unprofitable investment.

Prerequisite: C4T1L3.

All numbers, quotes, contract terms and dates in the case are hypothetical teaching assumptions, not a listed series or offer. Unless varied below, options are European, expire together in 90 calendar days, are cash settled in TRY, and use 100 underlying units per contract. Premiums are TRY per underlying unit, paid at entry; signed quantities identify long (+) and short (−) legs. Assume no distributions and zero financing for the isolated payoff, no holiday adjustment, and final cash on the next business day. Actual tax is excluded, not assumed zero.

Mechanics

Moneyness compares underlying and strike at a specified observation time. A call is in the money above strike and a put below it. At the money describes proximity to strike, not a precise universal band. Intrinsic value is the immediate exercise value calculated using the relevant underlying; a European right cannot necessarily realize that value immediately because exercise must wait. Time value is the remainder of a premium under the chosen intrinsic convention. These labels do not describe the investor’s paid cost.

Price and return drivers

Using spot intrinsic for the comparison, time value = premium − intrinsic. It often stays positive, but deferred exercise, distributions and rates mean a European option is governed by present-value bounds rather than a universal premium ≥ spot intrinsic rule. Do not call every apparent negative remainder an arbitrage. Exercise style, dividends, financing and stale quotes must be checked first. Cost-adjusted breakeven is an expiry cash-flow property; moneyness is an observation property.

Worked case

A hypothetical call K100 at S108 has supplied premium 11. Intrinsic is 8 and remainder 3 per unit. One long contract costs TRY 1100 plus TRY 20 total charges. Expiry breakeven is 111.20. A corresponding put at supplied premium 2 has intrinsic zero and remainder 2. At expiry S108, the call pays TRY 800 and loses TRY 320; the put pays zero and loses TRY 220. The premium supplied here is not a recommendation or an independently derived fair value.

Adverse case

For the long call bought at 11, expiry S90, S108 and S120 give net −1120, −320 and +880. Before expiry with S108 unchanged, a supplied bid falling from 11 to 9 gives net exit 900 − 1100 − 20 = −220. The right remains in the money by 8 while its sale value falls. This separates time-value erosion from an underlying loss. If an indicative mark shows 11 but the executable bid is 9, only the bid can support the proposed sale for the specified size.

Practical use

Use synchronized underlying and option quotes to label moneyness and premium remainder. The paid entry price belongs in the profitability ledger even after the right becomes in the money.

For any actual domestic implementation, verify the exact issue/contract, authorized intermediary, account permission and executable size. Include spread, commissions, passed-through fees, funding/borrow, custody and exercise/exit costs without double-counting embedded charges. Recheck income year, residency/status, issue/acquisition dates and effective tax law; all case results remain before actual tax.

Decision boundaries

Use the three labels to explain a position, not to select a cheap option by premium alone. Deep out-of-the-money options may have low cash prices and still lose the entire premium frequently. Deep in-the-money options can have high cash prices and relatively small time value. Decline comparison across unmatched expiries or multipliers until the units are normalized. Keep the premium paid in the profit ledger even after it becomes a sunk cost for the exercise decision.

Practice and references

Exercise: S92, K100 put, premium 10, one contract of 100 units, TRY 20 charges. Solution: Intrinsic = 8 and remainder = 2 per unit. Breakeven is 100 − 10 − 0.20 = 89.80. At expiry S92, payoff is TRY 800 and net result −220. An in-the-money put has not automatically earned a profit.

Takeaway: Moneyness describes the right, while cost-adjusted breakeven describes the investor’s result. Reference links: product card, formula; glossary: Moneyness; Intrinsic value; Time value. Next: C4T1L5. Topic test.

Sources: Borsa Istanbul: Options (retrieved 2026-10-26; General information and basic concepts). Borsa Istanbul: Settlement Method (retrieved 2026-10-26; Settlement by contract family). Options Industry Council: All Strategies (retrieved 2026-10-26; Strategy descriptions). GIB: Provisional Article67 Guide for Individuals (retrieved 2026-10-26; Sections1,3–9 and19; publication introduction). Revision 2026-10-26; recheck changing terms before publication.

Shared reference guide