Assume that a call option has an exercise price of $1.50/£. At a spot price of $1.45/£, the call option has:
A) a time value of $0.04.
B) a time value of $0.00.
C) an intrinsic value of $0.00.
D) an intrinsic value of -$0.04.

Question

Quizplus · Accepted Answer

An intrinsic value of a call option is calculated as the current spot price minus the exercise price, but it cannot be negative; if the result is negative, the intrinsic value is considered to be $0.00. Since the spot price ($1.45/£) is less than the exercise price ($1.50/£), the call option is out of the money and its intrinsic value is $0.00.

Assume That a Call Option Has an Exercise Price of $1.50/£