A call option selling for $8 with a $45 strike price on stock with a market price of $40 has a speculative premium of $3.

Question

Quizplus · Accepted Answer

The speculative premium (also known as time value) of an option is the difference between the option's price and its intrinsic value. Since the call option has a strike price of $45 and the stock's market price is $40, the option is out of the money and has no intrinsic value. Therefore, the entire price of the option ($8) is its speculative premium, not $3.

A Call Option Selling for $8 with a $45 Strike