Options Made Easy: Your Guide to Profitable Trading, Second Edition

Intrinsic and Time Value for Puts

Example 1.4. Where There is Intrinsic Value

Put Intrinsic Value   Put Time Value   Stock price $77.00 Stock price $77.00 Put premium $5.58 Put premium $5.58 Exercise Price $80 Exercise Price $80 Time till expiration 4 months Time till expiration 4 months         Intrinsic Value $80 − $77.00 = $3.00 Time Value $5.58 − $3.00 = $2.58 Notice how: (Intrinsic Value + Time Value) = the option price Formulas for Intrinsic and Time Values for puts: Put Intrinsic Value = exercise price–stock price Put Time Value = put premium (or value)–put Intrinsic Value The minimum Intrinsic Value is zero.

Example 1.5. Where There is no Intrinsic Value

Put Intrinsic Value   Put Time Value   Stock price $85.00 Stock price $85.00 Put premium $1.67 Put premium $1.67 Exercise ...