What is intrinsic and time value of the options in August

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Question - In June, an investor purchased 10 XYZ September 50 Calls when XYZ was trading for $45, paying a premium of $2. In August, XYZ rises in value to $55 and the call options trade for $6.

Required -

A. What was the total cost of the options at purchase in June?

B. What is the intrinsic and time value of the options in August?

C. If the investor were to sell the options in August, what is her net gain or loss?

D. Explain a key benefit of the call option in contrast to purchasing the shares using the above transaction as an example. Include calculations to support your answer.

Reference no: EM133075331

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