NISM Certifications · NISM-Series-VIII: Equity Derivatives · Introduction to Options
A stock trades at Rs 740. Which of the following call options on this stock, all with the same expiry, is in-the-money and has a time value of Rs 12 if its premium is Rs 52?
The Rs 700 strike call fits. Its intrinsic value is 740 minus 700, which is Rs 40, and subtracting this from the premium of Rs 52 leaves a time value of Rs 12. The other strikes give time values of 52 or 0.
- AStrike Rs 700Correct
- BStrike Rs 740
- CStrike Rs 780
- DStrike Rs 688
Explanation
Time value = premium - intrinsic value. For a call, intrinsic value is spot minus strike when positive. With strike 700, intrinsic is 40, so time value is 52 - 40 = 12. Strike 740 would give time value 52, strike 780 is out-of-the-money with time value 52, and strike 688 has intrinsic 52 and time value zero.
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