You own two put option contracts on Magpie stock with an exercise price of $37.50. What is the total intrinsic value of these contracts if the stock is currently selling for $35.90 a share?
A) -$320
B) -$160
C) $0
D) $160
E) $320

Question

Quizplus · Accepted Answer

The intrinsic value of a put option is calculated as the exercise price minus the current stock price, provided this difference is positive; otherwise, it's zero. For one put option on Magpie stock, the intrinsic value is $37.50 - $35.90 = $1.60. Since each contract typically covers 100 shares, the value per contract is $1.60 * 100 = $160. Owning two contracts doubles this value to $320 in total.

You Own Two Put Option Contracts on Magpie Stock with an Exercise