Purchase Solution

Intrinsic value and time value of an option

Not what you're looking for?

Ask Custom Question

Gillette is trading at $31.11. Call options with a strike price of $35 are priced at $.30. What is the intrinsic value of the option and what is the time value?

Can you show how you solved this?

Purchase this Solution
Solution Summary

The solution explains how to calculate the intrinsic value and time value of an option.

Solution Preview

Call option is the right to buy. The option premium that we pay is composed of intrinsic value and time value since we can make a gain by exercising the option (this gives the intrinsic value) and there may be time for the option to expire (this ...

Purchase this Solution
Free BrainMass Quizzes
IPOs

This Quiz is compiled of questions that pertain to IPOs (Initial Public Offerings)

SWOT

This quiz will test your understanding of the SWOT analysis, including terms, concepts, uses, advantages, and process.

Understanding Management

This quiz will help you understand the dimensions of employee diversity as well as how to manage a culturally diverse workforce.

Business Processes

This quiz is intended to help business students better understand business processes, including those related to manufacturing and marketing. The questions focus on terms used to describe business processes and marketing activities.

Employee Orientation

Test your knowledge of employee orientation with this fun and informative quiz. This quiz is meant for beginner and advanced students as well as professionals already working in the HR field.

View More Free Quizzes
Related BrainMass Solutions

  • Option Values and Exercise Values

    Thus the price of an option should equal or exceed its intrinsic (exercise) value. At expiration the value of an option equals its intrinsic value (because there is no more time left).

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

    Value= Option Premium= $5 Therefore Time Value= $5 - $4= $1 Answer: Intrinsic Value = $4 Time Value = $1 Calculating profit on a call option and intrinsic value of

  • Premium on Call Options

    For a call option intrinsic value = Max (0, S-X) For a put option intrinsic value = Max (0, X-S) where S = asset (stock) price and X = Strike (or Exercise) price Time value of an option is the amount by which an option's

  • Variables Affecting Option Price

    Value + Time Value Options have Intrinsic Value and Time Value.

  • Risk Management: Options

    The price of an option should equal or exceed its intrinsic value. At expiration the value of an option equals its intrinsic value (as time value is zero). Any time before expiration the Option Value = Intrinsic Value + Time Value.

  • Long position in a call option on IBM common stock

    How much of the option premium is due to intrinsic value versus time value? Intrinsic value=Underlying Stock's Current Price - Call Strike Price Time Value =140-136 =$4 Time value=$5-$4=$1. c.

  • Holder Ltd Purchased a Option Contract

    The time value is what an investor would pay to have the right for a period of time. The intrinsic value is the premium over current market price of the option price.

  • Call Options

    What is the intrinsic value of an RWJ Corp. call option? b. Are the put options in the money? What is the intrinsic value of an RWJ Corp. put option? c. Two of the options are clearly mispriced. Which one?

  • Call Option

    This is because the option value consists of both the intrinsic value and time value. Selling an option gives us both these amounts. However, exercising the option early only gets us the intrinsic value.

View More Related Solutions