Chapter 03 · Section 3.1

Options-Time Value

                    CALL                          PUT         
 Exercise    Mar      Jun      Sep           Mar      Jun     Sep 
 Price                                                             
 30         10.15    10.85     11.65         0.05     0.35    0.85 
 35          5.40     6.90      8.10         0.25     1.35    2.15 
 40          1.90     4.00      5.35         1.75     3.40    4.35 
 45          0.40     2.10      3.45         5.30     6.50    7.40 
 50          0.05     1.05      2.15        10.05    10.50   11.15 

                Stock price: $40    Today's date: February         

What is this option's time value?

a) $3.45
b) -$5.00
c) $1.55
• d) $5.00
  No. An option premium is made up of two components: time value and intrinsic value. Time value is therefore equal to the option premium minus the intrinsic value. The intrinsic value is zero, so the time value in this case must be...
  e) $.00

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