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Chapter 1. Introduction to Options > Intrinsic and Time Value for Puts

Intrinsic and Time Value for Puts

Example 1.4. Where There is Intrinsic Value

Put Intrinsic Value Put Time Value 
Stock price$77.00Stock price$77.00
Put premium$5.58Put premium$5.58
Exercise Price$80Exercise Price$80
Time till expiration4 monthsTime till expiration4 months
    
Intrinsic Value$80 − $77.00 = $3.00Time Value$5.58 − $3.00 = $2.58


Notice how: (Intrinsic Value + Time Value) = the option price

Formulas for Intrinsic and Time Values for puts:

  • Put Intrinsic Value = exercise price–stock price

  • Put Time Value = put premium (or value)–put Intrinsic Value

The minimum Intrinsic Value is zero.

Example 1.5. Where There is no Intrinsic Value

Put Intrinsic Value Put Time Value 
Stock price$85.00Stock price$85.00
Put premium$1.67Put premium$1.67
Exercise Price$80Exercise Price$80
Time till expiration4 monthsTime till expiration4 months
Intrinsic Value$80 − $85.00 = $0.00Time Value$1.67 − $0.00 = $1.67


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