Series 3: 4.1.6.1.1. Finding Intrinsic Value

Taken from our Series 3

4.1.6.1.1. Finding Intrinsic Value

Step 1: Find out how much the option is in the money. This amount is equal to the option’s intrinsic value.

$1,277 – $1,260 = $17

Step 2: Compute time value.

time value = current premium – intrinsic value

time value = $29.60 – $17 = $12.60

Intrinsic Value and Time Value of Premium
	Long Put	Short Put	Long Call	Short Call
Current market price	$1,260	$1,260	$1,260	$1,260
Option strike price	$1,277	$1,277	$1,277	$1,277
ITM amount (intrinsic value)	$17	$17	$0	$0

Current price of option	$29.60	$29.60	$12	$12
Intrinsic value	$17	$17	$0	$0
Time value	$12.60	$12.60	$12	$12

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