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    You have taken a long position in a call option on IBM common stock.

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    You have taken a long position in a call option on IBM common stock. The option has an exercise price of $136 and IBM's stock currently trades at $140. The option premium is $5 per contract.

    a) What is your net profit on the option if IBM's stock price increases to $150 at expiration of the option and you exercise the option?
    b) How much of the option premium is due to intrinsic value versus time value?

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    https://brainmass.com/business/options/ibm-common-stock-example-questions-458098

    Solution Preview

    Please see the attached file:
    You have taken a long position in a call option on IBM common stock. The option has an exercise price of $136 and IBM's stock currently trades at $140. The option premium is $5 per contract.

    a) What is your net profit on the option if IBM's stock price increases to $150 ...

    Solution Summary

    Calculating profit on a call option and intrinsic value of a call option is explained. Work and calculations are shown.

    $2.49

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