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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

Stock price

$77.00

Put premium

$5.58

Exercise Price

$80

Time till expiration

4 months

 

Intrinsic Value

$80 - $77.00 = $3.00

 

Put Time Value

Stock price

$77.00

Put premium

$5.58

Exercise Price

$80

Time till expiration

4 months

 

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 = exercise 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

Stock price

$85.00

Put premium

$1.67

Exercise Price

$80

Time till expiration

4 months

Intrinsic Value

$80 - $85.00 = $0.00

 

Put Time Value

Stock price

$85.00

Put premium

$1.67

Exercise Price

$80

Time till expiration

4 months

Time Value

$1.67 - $0.00 = $1.67

 

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