Intrinsic and Time Value for Puts - Example 4: OTM
|
Put Intrinsic Value
|
|
Put Time Value
|
|
Stock Price
|
$85.00
|
|
Stock Price
|
$85.00
|
|
Put Premium
|
1.67
|
Put Premium
|
1.67
|
|
Exercise Price
|
80.00
|
Exercise Price
|
80.00
|
|
Time to Expiration
|
4 months
|
Time to Expiration
|
4 months
|
|
|
|
|
|
Intrinsic Value
|
80.00 - 85.00 = 0.00 |
Time Value
|
1.67 - 0.00 = 1.67 |
Notice how [intrinsic value + time value] = the option value
Formulae for intrinsic and time values for puts:
-
put intrinsic value = strike price - stock price
-
put time value = put premium - put intrinsic value
The minimum intrinsic value is zero.