- Criteria for Successful Investing
- Risk Profile Charts
- The Definition of an Option
- The Valuation of Options
- Intrinsic and Time Value for Calls
- Intrinsic and Time Value for Puts
- The Seven Factors that Influence an Option's Premium
- Risk Profile Charts for Call Options
- Risk Profile Charts for Put Options
- Memory Tips for Long and Short Calls and Puts
- Basic Risk Profiles Summary
- Notation Standard for the Examples
- Chapter 1 Major Learning Points
Intrinsic and Time Value for Puts
Example 1.4. Where there is intrinsic value
Put intrinsic value |
|
|
Put time value |
|
Stock price |
$77.00 |
|
Stock price |
$77.00 |
Put premium |
5.58 |
|
Put premium |
5.58 |
Strike price |
80 |
|
Strike price |
80 |
Time to expiration |
4 months |
|
Time to expiration |
4 months |
Intrinsic value |
80 – 77.00 = 3.00 |
|
Time value |
5.58 – 3.00 = 2.58 |
Notice how: (Intrinsic value + time value) = the option price
Formulas for intrinsic and time values for puts:
- Put intrinsic value = strike price – stock price
- Put time value = put premium (or value) – put intrinsic value
The minimum intrinsic value is zero.
Example 1.5. Where there is no intrinsic value
Put intrinsic value |
|
|
Put time value |
|
Stock price |
$85.00 |
|
Stock price |
$85.00 |
Put premium |
1.67 |
|
Put premium |
1.67 |
Strike price |
80 |
|
Strike price |
80 |
Time to expiration |
4 months |
|
Time to expiration |
4 months |
Intrinsic value |
80 – 85.00 = 0.00 |
|
Time value |
1.67 – 0.00 = 1.67 |