Three weeks ago, you purchased a July 45 put option on RPJ stock at an option price of $3.20. The market price of RPJ stock three weeks ago was $42.70. Today, RPJ stock 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 equal to the difference between the strike price and the current stock price, if that difference is positive. In this case, the strike price is $45 and the current stock price is $44.75, so the intrinsic value is only $0.25 per share. Since one put contract represents 100 shares, the intrinsic value of the contract is $25 ($0.25 x 100 shares). Therefore, the only possible answer is D.

Three Weeks Ago, You Purchased a July 45 Put Option