Welcome to Options Premiums, the unit that unpacks the one equation the exam returns to over and over: every option's price splits into intrinsic value and time value, and getting that split straight makes the rest fall into place.
Exam Weight: Part 1 spans ~71% of the exam across Chapters 1-7 combined; NFA does not publish per-unit weights.
Video Resources
What You'll Learn
In this unit, you'll cover:
- Intrinsic Value: The in-the-money portion of a premium, how the call and put formulas mirror each other, and why intrinsic value can never be negative
- Time Value: The rest of the premium, why it decays to zero by expiration, and why it peaks at-the-money rather than deep in-the-money
- The Delta: How much a premium moves when the underlying futures price moves, why call delta is positive and put delta is negative, and how delta doubles as a hedge ratio
- Premium Quotations: How premiums are quoted in the underlying futures' points and how to turn a quote into a real dollar cost using the contract's point value
Why This Matters
Series 3 options are options on futures contracts, and premium questions run through the whole exam. Two ideas do most of the work: a premium is always intrinsic value plus time value, and only in-the-money options carry any intrinsic value at all. Anchor those, keep the call and put formulas from flipping, and the delta and quotation questions become mechanical.
Let's start with intrinsic value.