Intrinsic and Time Value for Calls - Example 1: ITM
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Call Intrinsic Value
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|
Call Time Value
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Stock Price
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$56.00
|
|
Stock Price
|
$56.00
|
|
Call Premium
|
7.33
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Call Premium
|
7.33
|
|
Exercise Price
|
50.00
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Exercise Price
|
50.00
|
|
Time to Expiration
|
2 months
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Time to Expiration
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2 months
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|
|
|
|
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Intrinsic Value
|
56.00 - 50.00 = 6.00 |
Time Value
|
7.33 - 6.00 = 1.33 |
Notice how [intrinsic value + time value] = the option value
Formulae for intrinsic and time values for calls:
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call intrinsic value = stock price - strike price
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call time value = call premium - call intrinsic value
The minimum intrinsic value is zero.