SIE practice questionmediumOptions — Intrinsic Value
A call option has a strike price of $50 and the underlying stock is trading at $58. The option has a premium of $10. What is the intrinsic value?
- A$10
- B$8✓ Correct answer
- C$0
- D$2
Explanation
Why B — $8
Intrinsic value of a call = stock price - strike price (when positive). $58 - $50 = $8 intrinsic value. The remaining $2 of the $10 premium is time value ($10 premium - $8 intrinsic = $2 time value). A call has intrinsic value when the stock price exceeds the strike price (in-the-money).
Turn it into reps
Reading one answer is not the same as being ready
Lucky the Banker is a free practice app with 1,867+ SIE questions, weak-area tracking, and timed mock exams. No credit card, no paywall.
Spot an error in this question or explanation? Tell us — we fix these fast.
Related Options questions
- Which of the following factors increases the time value of an option?
- An investor buys a put option on XYZ stock. The investor is:
- A put option with a strike price of $40 when the underlying stock is trading at $35 is:
- A call option gives the holder the right to:
- An investor buys 1 XYZ Oct 60 call at $4. What is the maximum potential loss?
- An investor holds a call option with a strike price of $50 when the underlying stock is trading at $60. What is the…
- An investor writes (sells) an uncovered (naked) call option. What is the maximum potential loss?
- Writing a covered call involves: