Premium pricing in options is based on intrinsic and extrinsic values. Intrinsic value is the market price subtracted from the strike price. Extrinsic value is determined by the Black Scholes model and is higher for at-the-money options, while out-of-the-money options have lower extrinsic value. Intrinsic and extrinsic values are added to determine the premium price of in-the-money options. As options move further out of the money, the extrinsic value decreases, thus lowering the premium price. Finally, the author shares a live market option chain with decoded values.
