Exercise 5 · 14 min

Intrinsic and extrinsic

Time: 20 to 25 minutes · You'll need: a calculator (or a spreadsheet) · Builds on: Lesson 5

Warm-up

Check yourself

An out-of-the-money put costs 1.40. What is its premium made of?

Check yourself

An in-the-money call has 3.00 of intrinsic and 1.10 of extrinsic with a week to go. If the stock doesn't move, about what is it worth at expiry?

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