Question

3. For a call option on IBM, if the current market price is $108 per share, the strike price is $95 per share, and the option value is $15 per share, how much is this option’s intrinsic value and time value?

4. Continue from #3, if the option is a put option, then what’s the intrinsic value and time value?

Answer #1

**3. The intrinsic value is computed as shown
below:**

**= current market price - strike price**

= $ 108 - $ 95

**= $ 13**

**The time value is computed as follows:**

**= option value - intrinsic value**

= $ 15 - $ 13

**= $ 2**

**4. The intrinsic value is computed as
follows:**

**= Strike price - current market price**

= $ 95 - $ 108

= - $ 13

**But intrinsic value cant be negative, hence the same is
$ 0.**

**The time value will be as follows:**

**= option value - intrinsic value**

= $ 15 - $ 0

**= $ 15**

Feel free to ask in case of any query relating to this question

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