SIE practice questioneasyCall options
A customer buys 1 XYZ May 50 call at a premium of $3. At expiration, XYZ is trading at $55. What is the intrinsic value of the option?
- A$8
- B$3
- C$0
- D$5✓ Correct answer
Explanation
Why D — $5
The intrinsic value of a call is the current stock price minus the strike price: $55 - $50 = $5. The premium is not intrinsic value. Intrinsic value cannot be negative.
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