Underlying stock price: 45.80 What is the market value per share of the November 45 put?
A) $1.80
B) $2.30
C) $2.80
D) $4.30
E) $7.00

Question

Underlying stock price: 45.80  What is the market value per share of the November 45 put?
A) $1.80 
B) $2.30 
C) $2.80 
D) $4.30 
E) $7.00

Quizplus · Accepted Answer

The market value per share of an option, or its premium, is calculated as the sum of its intrinsic value and time value. The intrinsic value of a put option is the strike price minus the underlying stock price, if this difference is positive, otherwise it is zero. In this case, the strike price is 45 and the underlying stock price is 45.80, so the intrinsic value is max(0, 45 - 45.80) = max(0, -0.80) = 0. The time value is the difference between the premium and the intrinsic value. The November 45 put has a premium of 2.30, so its time value is 2.30 - 0 = 2.30. Therefore, the market value per share of the option is 2.30.

Underlying Stock Price: 45