Suppose that Acme Widget is currently selling for $100 per share and you own a call option to buy Acme Widget at $75 per share.The intrinsic value of your option is
A) $25.
B) $75.
C) $100.
D) not possible to determine in the absence of information on values of the share price of Acme Widget between now and the expiration date of the call option.

Question

Quizplus · Accepted Answer

The intrinsic value of a call option is equal to the difference between the current stock price and the strike price of the call option. In this case, the current stock price of Acme Widget is $100 per share and the strike price of the call option is $75 per share. So, the intrinsic value of the call option is $100 - $75 = $25. It is not affected by the date to expiration of the call option or the volatility of the stock. Therefore, the correct answer is A) $25.

Suppose That Acme Widget Is Currently Selling for $100 Per