Question

A put option with a strike of $20 sells for $0.79. The underlying stock price is 21.92. What is the intrinsic value of this option?

Answer: 0 because it is out of the money. Please confirm

Answer 1

Put option is the right to sell. The strike price is the price at which the option becomes at the money and for prices below th estrike price it is in the money. The put option is exercised only when it is either at the money or in the money. When the spot price is higher than the strike price, as in this case, it is out of the money and wont be exercised.

Intrinsic value = Strike - spot when the option is exercised. In this case it wont be exercised so the intrinsic value will be 0