A call option has a strike price of $65 and is selling for $5 in the market. The underlying asset is trading at $48. What is the intrinsic value and time value respectively, of this option?
A) Intrinsic value $0, Time value $0
B) Intrinsic value $0, Time value $5
C) Intrinsic value $5, Time value $0
D) Intrinsic value $17, Time value $0
E) Intrinsic value $17, Time value $5

Question

Quizplus · Accepted Answer

The intrinsic value of a call option is the difference between the underlying asset's current price and the strike price, only if the asset's price is above the strike price. Since the asset is trading at $48 and the strike price is $65, the intrinsic value is $0 because the option is out of the money. The entire value of the option ($5) is therefore its time value.

A Call Option Has a Strike Price of $65 and Is