GENERAL KNOWLEDGE

Detailed explanation-1: -Intrinsic value of a call option: You agree to buy the asset at a price which is called the strike price. If the market price is above the strike price, then the call option has a positive intrinsic value. If the market price is below the strike price, then the call option has zero intrinsic value.

Detailed explanation-2: -At expiration, the ability to wait is not there and so the time value of the option becomes zero. For example, when a stock is selling for $60 a share, its call option with exercise price $55 is selling for $8. Then the intrinsic value of the call is $5 and the time value $3.

Detailed explanation-3: -Intrinsic value is a measure of an option’s profitability based on the strike price versus the stock’s price in the market. Time value is based on the underlying asset’s expected volatility and time until the option’s expiration.

Detailed explanation-4: -Time premium is the amount of the option’s price that exceeds its intrinsic value. As an option nears expiration and time decreases, the marketplace is increasingly less willing to pay any premium over intrinsic value until an option is trading purely for intrinsic value at expiration.