SIE practice questionmediumOptions: Intrinsic and Time Value
If a stock is trading at $42 and an investor holds a call option with a $40 strike price, what is the intrinsic value of the option?
- A$2✓ Correct answer
- B$0
- C$42
- D$40
Explanation
Why A — $2
Intrinsic value for a call is the current stock price minus strike price ($42-$40 = $2). $0 is wrong (the option is in-the-money), $42 and $40 are irrelevant to intrinsic value calculation.
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