NISM Certifications · NISM-Series-VIII: Equity Derivatives · Introduction to Options
A stock trades at Rs 240. A put option with strike Rs 250 is quoted at a premium of Rs 16. What is the time value of this put option?
The time value is Rs 6. The put is in the money by Rs 10 (strike 250 minus spot 240), and the premium is Rs 16, so the portion of the premium above intrinsic value, the time value, is Rs 6.
- ARs 6Correct
- BRs 10
- CRs 16
- DRs 26
Explanation
The put is in the money, with intrinsic value = 250 - 240 = Rs 10. Time value = premium - intrinsic value = 16 - 10 = Rs 6. Rs 10 is just the intrinsic value, and Rs 26 wrongly adds the two.
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