Question of the Week

The Standard and Poor’s 100 index closed on August 20 at 536.04. The Wall Street Journal quotes the closing premium for the OEX September 510 call at 28.90. What is the time value of the contract?

a) 2.86
b) 7.14
c) 18.90
d) 26.04

Answer:

The correct answer is a.

First, remember that OEX is the symbol for the S&P 100 index. The premium in an options contract is composed of both intrinsic value and time value. The intrinsic value of the Sept 510 call is 26.04 since the index closed at 536.04. In a call, subtract the strike price from the market price to find intrinsic value (536.04-510 = 26.04). Subtract the intrinsic value from the premium to find the time value (28.90-26.04 = 2.86).


Have a Financial Question?

Let us know what’s on your mind!

Sign Up For Our Professionals in the Money Newsletter!

Marketplace
Professionals FAQs
  1.

    Where can I look for a financial planner?

    References from trusted friends or family members can help you find a financial planner; however, keep in mind that your friends' financial situations and goals may differ from yours and, therefore, their planners won't necessarily be the best fit for you.The Certified Financial Planner (CFP) Board of Standards certifies financial planners and maintains an online list of certified financial planners on its CFP Board of Standards website.
  2.

    If I am looking to get an Investment Banking job. What education do employers prefer? MBA or CFA?

    If you are looking specifically for an investment banking position, an MBA may be marginally preferable over the CFA. The caveat here is that the MBA would most probably need to be from a Top-20 B-School.The Chartered Financial Analyst (CFA) is well worth considering if you (a) are aiming for an entry-level position in investment banking, and/or (b) cannot afford to shell out six figures for an MBA or have to settle for a lesser-known B-school.That's because in the investment banking field, most entry-level positions are at the analyst level.
  3.

    Can I still pass the CFA Level I if I do poorly in the ethics section?

    You may still pass the Chartered Financial Analysis (CFA) Level I even if you fare poorly in the ethics section, but don't count on it. The CFA Institute has long emphasized that ethics is a particular area of focus for it. The seriousness with which the CFA Institute views ethics is evident from the fact that for exam candidates with borderline total scores, performance on the ethics section can mean the difference between passing and failing the exam.
  4.

    Where do most fund managers get their market information?

    Many fund managers, whether they manage a mutual fund, trust fund, pension or hedge fund, have access to resources that the "average Joe" investor does not, but the type and quality of information generally remains the same for all investors. The information that managers use comes from publicly available information in the form of news releases, annual reports and filings with pertinent exchanges.