The stock of Bedrock Solutions is currently trading at $24.50 per share. The 1-month put option with strike price of 13.50 is currently selling for $2.16. What's the intrinsic value of this put option?
The stock of Bedrock Solutions is currently trading at $24.50 per share. The 1-month put option with strike price of 13.50 is currently selling for $2.16. What's the intrinsic value of this put option?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
The stock of Bedrock Solutions is currently trading at $24.50 per share. The 1-month put option with strike price of 13.50 is currently selling for $2.16.
What's the intrinsic value of this put option?
Expert Solution
Step 1
Option price is made up of intrinsic value and time value.
i.e
Option price = Intrinsic value + Time vale
Intrinsic value of put option = Maximum [ 0, Strike price - Market Price]
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