Let's say a trader bought an 85 strike put for $1.75. When he bought it, $0.50 of that premium was extrinsic value. If this option expires OTM, how much intrinsic value does it have at expiration?

Question

Business

Mercado

20 October, 16:56

Let's say a trader bought an 85 strike put for $1.75. When he bought it, $0.50 of that premium was extrinsic value. If this option expires OTM, how much intrinsic value does it have at expiration?

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Answers (1)

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Killian Blanchard · Answer 1

The question is incomplete, the options include;

1. $1.25

2. $0.00. is Correct

3. $1.75

4. $0.50

Explanation:

OTM - No interest inherent in that. OTM The quality of the options is purely extrinsic.

$0.50-$ 1.75 = $1.25 Fair interest.

However as mentioned above.

OTM Put has no intrinsic value, it offers the seller the rights to sell at such a lower price than that of the marker value.

OTM at expiration options will expire worthlessly (go unallocated).