Option premium is due to intrinsic value versus time value

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Reference no: EM131998235

You have taken a long position in a call option on IBM common stock. The option has an exercise price of $155 and IBM's stock currently trades at $158. The option premium is $10 per share and the contract size of the call option is 100 shares.

a. How much of the option premium is due to intrinsic value versus time value?

b. What is your net profit on one option contract if IBM's stock price increases to $170 at expiration of the option and you exercise the option?

c. What is your net profit if IBM's stock price decreases to $150?

Reference no: EM131998235

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