Question

Q1) The following option prices are given for Sunstar Inc., whose stock price equals $50.00:

Strike Price	Call Price	Put Price
45	5.50	1.00
50	1.50	1.50
55	1.00	5.50

Compute intrinsic values for each of these options and identify whether they are in-the-money, at-the-money, or out-of-the-money.

Answer 1

Call options.

1. 45 call is in-the-money & its intrinsic value is max(Spot price - strike price,0) = max(50 - 45, 0) = $5.
2. 50 call is at-the-money & its intrinsic value is max(Spot price - strike price,0) = max(50 - 50, 0) = 0.
3. 55 call is out-of-the-money & its intrinsic value is max(Spot price - strike price,0) = max(50 – 55, 0) = 0.

Put Options.

1. 45 put is out-of-the-money & its intrinsic value is max(Spot price - strike price,0) = max(45 - 50, 0) = 0.
2. 50 put is at-the-money & its intrinsic value is max(Spot price - strike price,0) = max(50 - 55, 0) = 0.
3. 55 put is in-the-money & its intrinsic value is max(Spot price - strike price,0) = max(55 - 50, 0) = $5.