NISM Certifications · NISM-Series-VIII: Equity Derivatives · Introduction to Options
A stock trades at Rs 640. A call option with strike Rs 600 has a premium of Rs 52. What is its time value?
The time value is Rs 12. The call's intrinsic value is Rs 40 (spot 640 minus strike 600). Time value is the premium minus intrinsic value, so 52 minus 40 leaves Rs 12.
- ARs 12Correct
- BRs 40
- CRs 52
- DRs 92
Explanation
The call is in-the-money, with intrinsic value 640 - 600 = Rs 40. Time value = premium - intrinsic value = 52 - 40 = Rs 12. Rs 40 is only the intrinsic value, and Rs 92 wrongly adds the two.
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