Question

Nightingale Plc.’s shares are currently trading at £18.50 per share. A put option has been issued with Nightingale’s shares as the underlying asset, which has a strike price of £18.00 per share and a call premium of £0.84 per share. Given the information above, the time value of the call option would be:

(a) £0.84.

(b) £0.00.

(c) £0.34.

Answer 1

The Time Value of the call option = £0.34

- For a Call Option, The intrinsic value of a call option is equal to the underlying price minus the strike price.

- The Intrinsic Value = Underlying Price – Strike Price

- The Time Value of the call option is the difference between the call premium the Intrinsic value

- Time Value of the call option = Call Premium – Intrinsic Value

Intrinsic Value

= Underlying Price – Strike Price

= £18.50 - £18.00

= £0.50

Time Value of the call option

= Call Premium – Intrinsic Value

= £0.84 - £0.50

= £0.34