Three weeks ago,you purchased a July 50 put option on BDR stock at an option price of $2.80.The market price of BDR stock three weeks ago was $48.22.Today,BDR stock is selling at $49.65 a share and the July 50 put is priced at $0.60.What is the intrinsic value of your put contract?

Question

Quizplus · Accepted Answer

The intrinsic value of a put option is equal to the strike price minus the market price of the underlying stock. In this case, the strike price is $50 and the market price of the stock is $49.65, so the intrinsic value is $0.35. However, since the option price is only $0.60, the total value of the option is $0.60 (the extrinsic value) plus $0.35 (the intrinsic value), which equals $0.95. Therefore, the option has a positive value of $0.95-$2.80=-$1.85, but the intrinsic value is still D)$35.

Three Weeks Ago,you Purchased a July 50 Put Option on BDR