# Introduction to Options

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## Intrinsic and Time Value for Calls

#### Example 1.2. Where there is intrinsic value

 Call intrinsic value Call time value Stock price \$56.00 Stock price \$56.00 Call premium 7.33 Call premium 7.33 Strike price 50 Strike price 50 Time to expiration 2 months Time to expiration 2 months Intrinsic value 56 – 50 = 6.00 Time value 7.33 – 6.00 = 1.33

Notice how: (Intrinsic value + time value) = the option price

Formulas for intrinsic and time values for calls:

• Call intrinsic value = Stock price – strike price
• Call time value = Call premium – call intrinsic value

The minimum intrinsic value is zero.

#### Example 1.3. Where there is no intrinsic value

 Call intrinsic value Call time value Stock price \$48.00 Stock price \$48.00 Call premium 0.75 Call premium 0.75 Strike price 50 Strike price 50 Time to expiration 2 months Time to expiration 2 months Intrinsic value 48 – 50 = 0.00 Time value 0.75 – 0.00 = 0.75
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