Datacorp stock currently trades at $50. August call options on the stock with a strike price of $55 are priced at $5.75. October call options with a strike price of $55 are priced at $6.25. Calculate the value of the time premium between the August and October options.
A) -$0.50
B) $0
C) $0.50
D) $5
E) -$5

Question

Quizplus · Accepted Answer

The time premium is the difference between the price of options with the same strike price but different expiration dates. In this case, we are comparing the time premium between August and October call options with a strike price of $55. The August call options are priced at $5.75 and the October call options are priced at $6.25. Therefore, the time premium is $6.25 - $5.75 = $0.50. The correct choice is (C).

Datacorp Stock Currently Trades at $50