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This chapter is from the book

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

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