A stock has a price of $68 per share. A two-month put (strike price = $70) on the stock is available at a $6 premium. The intrinsic value on the put is:
A) $0 and its time value is $6.
B) $0 and its time value is $4.
C) $2 and its time value is $4.
D) $4 and its time value is $2.

Question

Quizplus · Accepted Answer

The intrinsic value of a put option is the difference between the strike price and the stock price, if the strike price is higher. Here, $70 - $68 = $2. The time value is the premium minus the intrinsic value, $6 - $2 = $4.

A Stock Has a Price of $68 Per Share