Question

"Smythe Co. invested $200 in a call option for 100 shares of Gin Co. $.50 par common stock, when the market price was $10 per share. The option expired in three months and had an exercise price of $9 per share. What was the intrinsic value of the call option at the time of initial investment

Answer 1

$100

Step-by-step explanation:

The inherent value of a share or option or any other asset which an investor expects to have. In options it refers to the difference between it's current and the strike price.

The intrinsic value of options is calculated using the following formula:

Intrinsic value of option = Number of share options × ( Market price of the stock on the date of the grant - exercise price of the share option )

Intrinsic value of option = 100 × ( $10 - $9 )

Intrinsic value of option = 100 × $1

Intrinsic value of option = $100

So, the intrinsic value of the call option at the time of the initial investment was $100.