Question

Question 1:

A put option on DEF stock with a strike price of $10 expires today. The current price of TYU stock is $13.14. The put's intrinsic value is ___ and it is ____.

A) $3.14, out of the money

B) $3.14, in the money

C) $3.14, at the money

D) $0, out of the money

E) $0, in the money

Question 2:

A call option on GHI stock with a strike price of $17.50 expires today. The current price of GHI stock is $23.95. The call's intrinsic value is ___ and it is ____.

A) $6.45, at the money

B) $6.45 out of the money

C) $0, in the money

D) $6.45, in the money

E) $0, out of the money

Answer 1

Intrinsic value is the difference between strike price and stock price it will never be negative

1)  Put option intrinsic value = Exercise price - stock price = $10 - $ 13.14 = -$3.14 = 0 ( that is zero)

option D) 0, out of the money . when option is not advantagous to exercise it is called out of the money

2) Call option intrinsic value = Stock price - exercise price = $ 23.95- $17.50 = $ 6.45

Option D) 6.45, in the money . In the money means option is advantagoues to exercise by the holder