Question

A call option with a strike price of $50 on a stock selling at $55 costs $6.50. What are the call option's intrinsic and time values

Answer 1

Based on the information given the call option's intrinsic is $5.00, and time values is $1.50.

a. Intrinsic value

Using this formula

Intrinsic value=Stock selling price-Strike price

Let plug in the formula

Intrinsic value=($55-$50)

Intrinsic value=$5.00

b. Time values

Using this formula

Time values=Stock Cost price-Intrinsic value

Let plug in the formula

Time values=$6.50-$5.00

Time values=$1.50

Inconclusion the call option's intrinsic is $5.00, and time values is $1.50.

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