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) 18.90
b) 7.14
c) 2.86
d) 26.04


Answer:

The correct answer is c.

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).


Financial Professionals
  1. the general ledger is the record of a company's entire financial transaction history.
    Investing

    What's a General Ledger?

  2. Several things factor into the salary of a financial advisor. Here's a look.
    Investing Basics

    How Much Does A Financial Advisor Earn?

  3. These 5 strategies offer financial advisors a blueprint on how to grow their practices.
    Professionals

    Growth Strategies For Financial Advisors

  4. If you're considering investing in China and want to know when to buy, sell, hold or stay away, consider these economic indicators.
    Economics

    Eyeing China? Consider These Economic Indicators

  5. Whether you're a saver or a financial advisor who want to give their clients a leg up, these 8 tips are essential for financial planning.
    Investing Basics

    8 Essential Tips For Retirement Saving