Series 7 practice questionmediumOptions — Intrinsic Value
LMN stock is trading at $47. An LMN 50 put has a premium of $5. What is the intrinsic value and time value of this put?
- AIntrinsic value $3, time value $2✓ Correct answer
- BIntrinsic value $5, time value $0
- CIntrinsic value $0, time value $5
- DIntrinsic value $2, time value $3
Explanation
Why A — Intrinsic value $3, time value $2
Intrinsic value for a put is the strike price minus the stock price: $50 - $47 = $3. Time value is the premium minus the intrinsic value: $5 - $3 = $2. The put is in-the-money by $3 because the holder can sell at $50 when the stock is worth only $47.
Turn it into reps
Reading one answer is not the same as being ready
Lucky the Banker is a free practice app with 755+ Series 7 questions, weak-area tracking, and timed mock exams. No credit card, no paywall.
Related Investment Information & Recommendations questions
- What is the maximum loss for a writer of an uncovered put option with a strike price of $60 and a premium of $4?
- An investor owns 100 shares of QRS purchased at $75 and buys 1 QRS Dec 70 put at $3. What is the maximum loss on this…
- An investor writes 1 XYZ Mar 40 put at $3. At expiration, XYZ is at $35. What is the investor's gain or loss?
- An investor buys 100 shares of ABC at $62 and writes 1 ABC Sep 65 call at $4. What is the breakeven point on this…