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 |