Question

You have written a call option on Walmart common stock. The option has an exercise price of $89, and Walmart’s stock currently trades at $87. The option premium is $1.35 per contract. a. How much of the option premium is due to intrinsic value versus time value? b. What is your net profit if Walmart’s stock price decreases to $85 and stays there until the option expires? c. What is your net profit on the option if Walmart’s stock price increases to $95 at expiration of the option and the option holder exercises the option?

Answer 1

A. Intrinsic value is 0. Time value is 1.35.

B. 1.35

C. -4.65

Step-by-step explanation: