Question

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?

Answer 1

Answer:

$0.00

Explanation:

In an OTM option, there's only extrinsic value and absolutely no intrinsic value.

OTM Options price are in its entirety, made up of only extrinsic value, therefore, the price of any at the money option or out of the money is solely comprised of of extrinsic value.

Answer 2

Answer:

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).