Last week, you purchased a call option on Rosewood stock at an option price of $6.80. The stock price last week was $34.50. The strike price is $40. What is the intrinsic value of your investment if Rosewood is currently priced at $38.75?

Question

Quizplus · Accepted Answer

The intrinsic value of a call option is the current stock price minus the strike price, but it cannot be less than $0 (as you wouldn't exercise the option in that case). Since the current stock price ($38.75) is less than the strike price ($40), the intrinsic value is $0.

Last Week, You Purchased a Call Option on Rosewood Stock