Question

A call option with a strike price of $50 on a stock selling at 60 costs $12.5. The call option's intrinsic value is 1) 10, 12.5 2) 12.5, 10 3) 50, 12.5 4) 10, 2.5 5) None of the above 8. and time value is You purchase one share of IBM July call option. The exercise price is 120 and the option premium is $5. You hold the option until the expiration date when IBM stock sells for $123 per share. You will realize a 1) $2 profit 2) $2 loss 3) $3 profit 4) $3 loss 5) None of the above on the investment. You purchased a put option with an exercise price of 120 and an option premium of $5). You hold the option until the expiration date when IBM stock sells for $127 per share. You will realize a 1) $2 profit 2) $2 loss 3) $5 loss 4) 0 profit 5) none of the above 10. on the investment. 9.

Answer 1

8. Call option premium value = Intrinsic Value + Time Value

Intrinsic Value = max(Spot price - Strike Price , 0)

Spot price = $60

Strike Price = $50

Spot price - Strike Price = $60-$50 = $10

Intrinsic Value = max(10 , 0)

Intrinsic Value = $10

Time Value = Call option premium value - Intrinsic Value

Time Value = 12.5-10 = $2.5

answer is (4)