Module 2 Lesson 1

Question 1

What are the two components of an option price?

Answer 1

Intrinsic Value & Extrinsic Value.

Question 2

Intrinsic plus Extrinsic Value equal?

Answer 2

Option price.

Question 3

Intrinsic Value is defined as?

Answer 3

The component of an option’s value that is directly linked the price of the underlying.

Question 4

Intrinsic Value is also defined as?

Answer 4

The amount of profit on the stock that could be realized by exercising the option.

Question 5

If the Strike Price> Underlying Stock Price , Call Option is OTM it has no?

Answer 5

Intrinsic Value.

Question 6

If Strike Price < Underlying Stock Price, Call Option is ITM it has?

Answer 6

Intrinsic Value equal to Stock Price minus Strike Price.

Question 7

Extrinsic Value is the component of an option’s price that is linked to?

Answer 7

Factors other than the price of the underlying. In other words, everything that is NOT intrinsic value.

Question 8

What are the factors that influence the price of an option?

Answer 8

Underlying Stock Price, Time (Days Til Expiry) and (Uncertainty).