How is NIFTY option premium calculated?

Call intrinsic value = spot minus strike, if positive, else zero. Put intrinsic value = strike minus spot, if positive, else zero. Time value = premium minus intrinsic value.

Example: NIFTY at 24,560. The 24,500 call trades at 132, so its intrinsic value is 60 and its time value is 72. The 24,600 call trades at 88; it has no intrinsic value, so all 88 is time value. The 24,500 put trades at 70, with zero intrinsic value, so all 70 is time value too.

Five inputs: the spot price, the strike, the days left to expiry, implied volatility and the interest rate. Pricing models such as Black-Scholes combine them into a fair value. Of these, only spot, time and IV change during a normal trading day, and IV is the one beginners forget.

Supply and demand do the rest. Before an event like RBI policy or election results, buyers bid options up and IV rises, so premiums get expensive even if NIFTY has not moved.

Delta gives the first answer. A call with delta 0.5 gains about 50 paise for every point NIFTY rises. Gamma tells you how fast delta itself changes, so the gain speeds up as the call goes into the money. Theta takes some premium away every day, faster in the last week. Vega adds or removes premium when IV moves by a point.

You can build the Black-Scholes formula in Excel with NORM.S.DIST, using spot, strike, days to expiry divided by 365, IV as a decimal and the risk-free rate. It gives a fair value close to the market for liquid strikes. The hard part is IV: you either take it from the option chain or back it out from the market price with Goal Seek, which is circular. For quick trade planning most traders use a calculator built into their option chain instead.

The premium is quoted per unit. What you pay is premium times lot size, plus brokerage and charges. Option sellers do not pay the premium; they receive it and post margin instead.