Question

assume that a stock is selling for $47 with options available at 20, 30, and 40 strike price. The 30 call option is at 10 1/2. Calculate the following:

A) The intrinsic value of the $40 call.

B) Is the call in the money?

c)The speculative premium on the 30 call option

D) The percent the speculative premium represents of the common stock price

Answer 1

ANSWER :

given:stock is selling for $47 with options available at 20, 30, and 40 and  The 30 call option is at 10 1/2

FOR(A)

The intrinsic value of the $40 call.

The intrinsic value = $47 - $40 = $7

FOR(B)

Is the call in the money?

Yes, because the stock price > strike price

FOR(C)

The speculative premium on the 30 call option

The speculative premium = $10½ - $7 = $3.50

FOR(D)

The percent the speculative premium represents of the common stock price

Speculative Premium as % of stock price $3.50/$47 = 7.44%