Question

Koka Kola common stock is currently trading for $29 per share. A put option on the stock with a strike price of $32 that expires in 334 days is selling for $3.76. A call option on the stock with a strike price of $32 that expires in 334 days is currently trading for $1.99. What is the exercise value of the put option? (Rounded to the nearest cent.) $ What is the put option's time premium? (Rounded to the nearest cent.) $ || What is the exercise value of the call option? (Rounded to the nearest cent.) $ What is the call option's time premium? (Rounded to the nearest cent.) $

Answer 1

The exercise value of the put option is $3, as the stock price is below the strike price.

Put option exercise value = Strike price - Stock price

= $32 - $29

The premium paid on the put option is $3.76 = intrinsic value + time value

So, the time premium paid on the put option is $3.76- $3 which is 0.76 which is 0.8 (rounded off to the nearest cents)

Exercise value of the call option is : 0

As the stock price is less than the strike price. The buyer of the call option will not exercise the option.

The premium paid on the call option is $1.99, as the intrinsic value is 0 so the time premium paid is $1.99 which is $1.99 which is $2  ( rounded off to the nearest cents). When the intrinsic value is 0, then the premium paid is entirely the time premium.