Three weeks ago, you purchased a July 45 put option on RPJ at an option price of €3.20.The market price of RPJ three weeks ago was €42.70.Today, RPJ is selling at €44.75 a share and the
July 45 put is priced at €.80.What is the intrinsic value of your put contract?

Question

Quizplus · Accepted Answer

The intrinsic value of a put option is the difference between the strike price and the current market price of the underlying asset. In this case, the strike price of the option is €45 and the current market price of RPJ is €44.75.

Therefore, the intrinsic value of the put option is €0.25 (€45 - €44.75).

Since the current price of the put option is €0.80, we can conclude that the time value of the option is €0.80 - €0.25 = €0.55.

To calculate the profit/loss from the option, we need to subtract the total cost of the option (€3.20) from the current value of the option (€0.80).

Profit/Loss = Current value of option - Total cost of option
Profit/Loss = €0.80 - €3.20
Profit/Loss = -€2.40

Therefore, the answer is:

Answer: D
 The intrinsic value of the put option is €0.25. The total cost of the option was €3.20, and the current value of the option is €0.80. Therefore, the profit/loss from the option is -€2.40, which is a loss of €240.

Three Weeks Ago, You Purchased a July 45 Put Option