CLASSROOM EXERCISE
Why did the call fall? One complete class exercise
Run the guided experiment with a class. Learners judge the evidence, change one input and explain a new case.
Learner link: the guided experiment
Share this link. It works on a phone too.
Notes for the teacher
- Plan about 15 minutes for one run.
- Ask everyone to answer step 1 before anyone reveals the inputs.
- In step 1, the supported answer is that the cause cannot be pinned down yet.
- In the new case, that same answer is wrong. Every input is shown there.
- Keep the worked explanation closed until the new case is answered.
- A right answer after feedback is practice. Only a right first answer counts.
Alternate case, for a second group or a retest
The index fell 50 points. The call rose ₹2.73. What explains the rise?
Start: spot 24,000, 3 days left, IV 15%. End: spot 23,950, 2.75 days left, IV 19%. Strike 24,000. Rate 6%, yield 0%.
Show the answer
IV rose, and in this model it added ₹33.85. Spot took away ₹24.39. Time took away ₹6.73. The IV rise was the larger effect.
Its numbers come from the same model as the experiment.
Why each answer is right or wrong
Show the reasons
The index rose. This call fell. What do you know so far?
- It must be an IV crush. (Not supported) Not yet. That could be true, but these two numbers cannot prove it. Time and IV are still hidden, and more than one input can move at once.
- It must be time decay. (Not supported) Not yet. That could be true, but these two numbers cannot prove it. Time and IV are still hidden, and more than one input can move at once.
- There is not enough information to isolate the cause. (Supported) Yes. Direction alone cannot show why the premium fell. Several inputs can change at once. You need the rest of the inputs first.
The call falls again. Is the reason the same? Every input is stated this time. Which explanation fits them?
- IV fell, so the premium fell. (Not supported) Not this time. IV did not move in this case, so it cannot explain the fall.
- Time took away more value than the spot move added. (Supported) Yes. Spot added +₹5.16. Time took away −₹13.92. IV added ₹0.00.
- Calls always lose value near expiry. (Not supported) Not quite. A call can gain value near expiry if spot moves enough. Here time outweighed a small spot move.
- There is not enough information to tell. (Not supported) This time you can tell. Every input is stated. Compare what spot added with what time took away.
A suggested marking guide (provisional)
These weights are a starting guess. They have not been tested as a measure of learning.
If a number looks wrong
- Check it against Market X-Ray. Every number here comes from the same model.
- If the two disagree, trust Market X-Ray.
- If a figure here disagrees with its source, trust the source.
LESSON PROMPT
Option Premium: spot, time and IV in one browser-only model
Learning objective: Separate the model effects of spot, time and IV in one example.
Starting setup: NIFTY PUT at the dated teaching reference. Start with the PUT-barely-moved example.
Reset: Open Market X-Ray and use Reset scenario.
- Start with the question: why did the premium move differently from the index?
- Change spot, time and IV one at a time so why the value changed stays visible.
- Close with the boundary: the result is theoretical and cannot name a tradeable quote.
Common misconception: A PUT must rise by the same amount whenever the index falls.
Challenge: Keep the index move fixed and remove the IV change. What part of the explanation changes?
LESSON PROMPT
Open Interest: creation, transfer and closure
Learning objective: Separate outstanding contracts (OI) from trading activity (volume).
Starting setup: A fresh four-participant ledger. OI and volume both start at zero.
Reset: Open Market X-Ray and use Reset scenario.
- Show one fresh contract being created and OI rising by one.
- Transfer the contract and point out that volume changes while OI stays still.
- End by separating a descriptive OI reading from a directional claim.
Common misconception: A transfer creates a second open contract because two people trade it.
Challenge: Apply the two transfer events. Which counter changes and which stays still?
LESSON PROMPT
Option Chain: read the columns by question
Learning objective: Read option-chain columns by question without turning a column into a recommendation.
Starting setup: NIFTY at the rounded teaching reference with five fixed strike rows.
Reset: Open Market X-Ray and use Reset scenario.
- Pick the question first: premium, liquidity, OI, IV or moneyness.
- Move the practice spot and watch ATM shift to a different strike.
- End by saying a column can describe a contract without recommending it.
Common misconception: A highlighted column chooses the contract for the learner.
Challenge: Move spot one grid step. Which listed strike is nearest now?
LESSON PROMPT
Bid/Ask and Slippage: why LTP is not a fill promise
Learning objective: Show why depth, spread and quantity can produce a fill away from LTP.
Starting setup: Compare bid and ask depth for 40 units.
Reset: Open Market X-Ray and use Reset scenario.
- Start with LTP versus the current bid and ask.
- Increase quantity and show the fill walking through worse book levels.
- Close with the lesson that order-book depth is not captured by one premium number.
Common misconception: Last traded price promises the next fill price.
Challenge: Run a quantity larger than the best level. Which prices appear in the ledger?
LESSON PROMPT
Expiry: what remains at expiry
Learning objective: Keep intrinsic value, entry cost and buyer/seller P&L distinct at exact expiry.
Starting setup: A NIFTY CALL at the stated teaching strike with settlement at that strike.
Reset: Open Market X-Ray and use Reset scenario.
- Move settlement across the strike and show when intrinsic value appears.
- Point out that time value is zero at exact expiry in this model.
- End with the holiday-adjustment boundary: verified dates only, no guessing.
Common misconception: ITM automatically means the buyer made a profit.
Challenge: Move settlement through the strike. Which value changes at the strike and which entry cost does not?
LESSON PROMPT
Build a strategy: option legs before and at expiry
Learning objective: Trace every option leg and compare current model P&L with expiry P&L.
Starting setup: The defined Bull Call Spread with one teaching-unit multiplier.
Reset: Open Market X-Ray and use Reset scenario.
- Choose a defined structure and read every leg before looking at the total.
- Move spot or settlement and compare current model value with expiry payoff.
- Close by avoiding rankings: Market X-Ray explains exposure, not which strategy to use.
Common misconception: Today's theoretical P&L is the same as expiry payoff.
Challenge: Change the structure. Which curve still contains time and IV?