Series 7 practice questioneasyOptions — Intrinsic Value
XYZ stock is trading at $53. An XYZ 50 call option has a premium of $5. What is the intrinsic value of this call?
- A$5
- B$3✓ Correct answer
- C$2
- D$0
Explanation
Why B — $3
Intrinsic value for a call option is the stock price minus the strike price: $53 - $50 = $3. The remaining $2 of the $5 premium is time value. A call has intrinsic value when the stock price exceeds the strike price (in-the-money).
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