CMA Final · Strategic Financial Management · Options
A European put option on the shares of an Indian company has a strike price of Rs 450. The share currently trades at Rs 438 and the put is quoted at a premium of Rs 22. What is the time value of this put per share?
The time value is Rs 10 per share. The put's intrinsic value is the strike minus spot, Rs 12, and time value is the premium of Rs 22 less that intrinsic value. Rs 12 is intrinsic value, not time value.
- ARs 10Correct
- BRs 12
- CRs 22
- DRs 34
Explanation
Intrinsic value of a put = strike - spot = 450 - 438 = Rs 12. Time value = premium - intrinsic value = 22 - 12 = Rs 10. Rs 12 is only the intrinsic value, and Rs 22 is the whole premium.
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