If the strike or exercise price for a put option is $75, and the current asset price is $75, and the market value of the put option is $77. What is the time premium of the put option?

Question

Quizplus · Accepted Answer

The time premium is the difference between the market value and intrinsic value of an option. Intrinsic value is the difference between the strike price and the current asset price, which in this case is zero. Therefore, the entire market value of $77 is due to time premium. Since the strike price and current asset price are the same, the option is at-the-money and the time premium is equal to the market value. Thus, the time premium is $77 - $75 = $2. The correct choice is B.

If the Strike or Exercise Price for a Put Option