• Print
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