Question

Given the following information,

price of a stock | $39 | |

strike price of a six-month call | $35 | |

market price of the call | $ 8 | |

strike price of a six-month put | $40 | |

market price of the put | $ 3 | |

finish the following sentences.

a. | The intrinsic value of the call is _________. |

b. | The intrinsic value of the put is _________. |

c. | The time premium paid for the call is _________. |

d. | The time premium paid for the put is _________. |

At the expiration of the options (i.e., after six months have lapsed), the price of the stock is $45. | |

e. | The profit (loss) from buying the call is _________. |

f. | The profit (loss) from writing the call covered (i.e., buying the stock and selling the call) is _________. |

g. | The profit (loss) from buying the put is _________. |

h. | The profit (loss) from selling the stock short is _________. |

i. | The maximum possible loss from buying the put is _________. |

j. |
At expiration, the time premium paid for a put or a call is _________. |

Answer #1

(a) Intinsic Value of the call is the difference between the curent Market price of the stock and Strike price of Call.

= $39-$35

=$4

The intrinsic value of the call is $4.

(b) The Intrinsic value of Put is $1

The difference between strike price of Put option and current Market price of the stock.

(c) Time Premium paid for the Call is the difference between Market price of the call and Intrinsic value of the Call

The tiem premium paid for the call is $4

(d) The Time premium paid of the put is $2

The difference between Market put and Intrinsic

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