Annexure A: Band Value Behaviour

The tables below describe how a band’s intrinsic and extrinsic value change as perp mark price moves relative to the band’s inner and outer bounds.

Long Band

For long bands, inner bound < outer bound. Intrinsic value is capped at outer − inner when fully ITM.

Range Status	Price Move	Updated Range Status	Intrinsic Value	Extrinsic Value
price < inner < outer (OTM)	up	—	0 (still OTM)	↑ price closer to inner
	down	—	0 (still OTM)	↓ price further from inner
	—	inner < price < outer	↑ becomes nonzero	↓ intrinsic absorbs extrinsic
inner < price < outer (in range)	up	—	↑ price further from inner	↓ price closer to outer
	down	—	↓ price closer to inner	↑ price further from outer
	—	price < inner < outer	↓ to 0, exits range past inner	↑ then ↓ peaks near inner
	—	inner < outer < price	↑ capped at outer−inner	↓ to 0 (fully ITM)
inner < outer < price (fully ITM)	up	—	capped (unchanged)	0 (still fully ITM)
	down	—	capped (unchanged)	0 (still fully ITM)
	—	inner < price < outer	↓ intrinsic uncaps	↑ extrinsic reappears

Short Band

For short bands, inner bound > outer bound. Intrinsic value is capped at inner − outer when fully ITM.

Range Status	Price Move	Updated Range Status	Intrinsic Value	Extrinsic Value
price > inner > outer (OTM)	up	—	0 (still OTM)	↓ price further from inner
	down	—	0 (still OTM)	↑ price closer to inner
	—	inner > price > outer	↑ becomes nonzero	↓ intrinsic absorbs extrinsic
inner > price > outer (in range)	up	—	↓ price closer to inner	↑ price further from outer
	down	—	↑ price further from inner	↓ price closer to outer
	—	price > inner > outer	↓ to 0, exits range past inner	↑ then ↓ peaks near inner
	—	inner > outer > price	↑ capped at inner−outer	↓ to 0 (fully ITM)
inner > outer > price (fully ITM)	up	—	capped (unchanged)	0 (still fully ITM)
	down	—	capped (unchanged)	0 (still fully ITM)
	—	inner > price > outer	↓ intrinsic uncaps	↑ extrinsic reappears