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  • 17 Video Basic Properties Option Prices or Premium

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    Natasha Ghazali
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    The document discusses the basic properties of option prices, including intrinsic value and time value. It provides an example question calculating the premium of a put option, call option, and straddle based on the underlying stock price, strike price, and time value. For the put option, the intrinsic value is zero and the premium is the time value of 0.15. For the call option, the intrinsic value is the stock price minus the strike price of 3.4, so the premium is the intrinsic value plus the time value of 3.55. The straddle premium would be the sum of the put and call premiums.

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    The document discusses the basic properties of option prices, including intrinsic value and time value. It provides an example question calculating the premium of a put option, call option, and straddle based on the underlying stock price, strike price, and time value. For the put option, the intrinsic value is zero and the premium is the time value of 0.15. For the call option, the intrinsic value is the stock price minus the strike price of 3.4, so the premium is the intrinsic value plus the time value of 3.55. The straddle premium would be the sum of the put and call premiums.

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    © All Rights Reserved
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    2 views9 pages

    17 Video Basic Properties Option Prices or Premium

    Uploaded by

    Natasha Ghazali
    The document discusses the basic properties of option prices, including intrinsic value and time value. It provides an example question calculating the premium of a put option, call option, and straddle based on the underlying stock price, strike price, and time value. For the put option, the intrinsic value is zero and the premium is the time value of 0.15. For the call option, the intrinsic value is the stock price minus the strike price of 3.4, so the premium is the intrinsic value plus the time value of 3.55. The straddle premium would be the sum of the put and call premiums.

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    © All Rights Reserved
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    of 9

    Basic Properties

    of Option
    Prices/Premium
    Basic Properties of Option
    Prices
    Intrinsic Value
    Time Value
    Example
    Question On
    Calculation Of
    Option Premium
    QUESTION
    1. An option has time premium/ time value of 15 sen. Suppose the strike price is RM 10.50
    and the underlying stock is currently selling at RM 13.90. Determine the correct option
    premium if the option is:

    i. Put Option
    ii. Call Option
    i. A straddle with exercise price RM10.50
    PUT OPTION

    MP 13.9
    XP 10.5
    TV 0.15

    IV#OF#PUT#OPTION
    = XP + MP
    = 10.5 + 13.9
    = +3.4 = 0 (CHANGE#TO#0#IF#NEGATIVE#VALUE)

    PUT#OPTION#PRM
    = IV + TV
    = 0 + 0.15
    = 0.15
    CALL OPTION

    MP 13.9
    XP 10.5
    TV 0.15

    IV#OF#CALL#OPTION
    = MP - XP
    = 13.9 - 10.5
    = 3.4 = 3.4 (CHANGE#TO#0#IF#NEGATIVE#VALUE)

    CALL#OPTION#PRM
    = IV + TV
    = 3.4 + 0.15
    = 3.55
    Thank you

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