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You hold a call option on a stock with a strike of EUR 35. The current premium for this option is EUR 3.80 and the underlying stock is trading at EUR 32. How much of this option price represents time value?
Suggested Answer: B
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39 comments · newest first
BI
Billy
11 months ago
I thought the whole premium was time value, but I guess not!
EL
Elliot
11 months ago
Yeah, it's all about that time value, so EUR 0.80 makes sense.
LO
Lon
11 months ago
Wait, how can it be in-the-money if the stock is at EUR 32?
RO
Rosalia
12 months ago
I think it's EUR 0.80, right?
FA
Farrah
1 year ago
The option is out-of-the-money, so time value is definitely there.
TH
Thurman
1 year ago
I feel like the time value is just the premium minus any intrinsic value, but I'm confused about how to apply that here since the option is not in-the-money.
MI
Mike
1 year ago
I practiced a similar question where we had to separate intrinsic and time value. I think here, the intrinsic value is zero since the option is out-of-the-money.
DE
Desmond
1 year ago
I remember something about intrinsic value and time value; since the stock is below the strike price, the entire premium might not be time value.
TA
Tamie
1 year ago
I think the time value is the part of the premium that accounts for the potential of the stock moving above the strike price, but I'm not sure how to calculate it exactly.
LA
Lashaun
1 year ago
Alright, I got this. The current premium is EUR 3.80, and the intrinsic value is the difference between the strike price (EUR 35) and the current stock price (EUR 32), which is EUR 3.00. So the time value must be the remaining EUR 0.80. Easy peasy!
CL
Clay
1 year ago
I'm a bit confused here. If the option is in-the-money, doesn't that mean the time value is zero? Or am I missing something?
JO
Jolene
1 year ago
Ugh, options pricing is not my strong suit. Let me think this through step-by-step. Okay, the current premium is EUR 3.80 and the stock is trading at EUR 32, so the intrinsic value must be the difference, which is EUR 3.00. So the time value should be the remaining EUR 0.80.
EL
Ellen
1 year ago
Hmm, this looks like a classic options pricing question. I think I can handle this - I just need to remember the formula for time value.
EL
Elli
1 year ago
This looks like a tricky one. I'll need to carefully review the SFRA best practices to determine which option is the most appropriate.
RO
Roy
2 years ago
I think it's EUR 3.80, the whole premium
KE
Kerry
2 years ago
I believe the time value is EUR 3.00
AR
Arminda
2 years ago
I agree with Carin, it's EUR 0.80
CA
Carin
2 years ago
I think the time value is EUR 0.80
BE
Beth
2 years ago
I think it's EUR 3.80, the whole premium
VI
Victor
2 years ago
Haha, Fausto, you almost had me there! But the time value is the premium minus the intrinsic value, which is EUR 3.00. Nice try, though!
LO
Lon
2 years ago
Thanks for the clarification, I almost got confused there!
SH
Shalon
2 years ago
Yeah, the time value is EUR 3.00 because the option is in-the-money.
EL
Ellen
2 years ago
I thought it was EUR 3.80, but you're right, it's EUR 3.00.
YU
Yuonne
2 years ago
I believe the time value is EUR 3.00
YU
Yuriko
2 years ago
I agree with Celeste, it's EUR 0.80
FA
Fausto
2 years ago
Hold up, folks. Isn't the time value just the premium itself, since the option is in-the-money? I'm going with option B.
MA
Marvel
2 years ago
Option B is correct, the time value is equal to the premium in this case.
JU
Jutta
2 years ago
Yes, the time value is the premium, so option B is the right choice.
SO
Solange
2 years ago
I agree, the time value is the premium, so option B is correct.
LA
Lajuana
2 years ago
I think the time value is just the premium itself, so I'm going with option B.
JA
Jani
2 years ago
This one's a no-brainer. If the option is in-the-money, the time value is the premium minus the intrinsic value, which is EUR 3.00. Easy peasy!
RE
Remona
2 years ago
I agree with Audry. The time value is the amount the option is worth above its intrinsic value, which is EUR 3.00 in this case.
WI
Wilda
2 years ago
Yes, that's correct. The time value is the premium above the intrinsic value.
SA
Salome
2 years ago
I think the time value is EUR 3.00.
CE
Celeste
2 years ago
I think the time value is EUR 0.80
AU
Audry
2 years ago
Option C is the correct answer. The time value of an in-the-money option is the difference between the option premium and the intrinsic value, which in this case is EUR 3.00.
ET
Ettie
2 years ago
D) EUR 0.80
AL
Alex
2 years ago
C) EUR 3.00
KA
Karina
2 years ago
B) EUR 3.80