I can do the questions but im looking for explanations behind the answers if you

Question

I can do the questions but im looking for explanations behind the answers if you could for a deeper understanding. Much appreciated.

1)SSH inc stock currently sells for 18 dollars. A put option on the stock has a strike price of 11 dollars and currenty sells at 4.33 dollars. What is the time value of the option?

2)You own a put option on a stock and the strike price of the option is 30 dollars. The option has 3 weeks until expiration and the stock iscurrently priced at 35 dollars per share. What is the largest payout possible for this put option? Ignore the original cost of the option for the payout calculation.

3)Suppose you bought 15 SSH Inc. put options with a strike price of 25 dollars at $3.25 per option. If the price of SSH Inc. stock is 31 dollars, what is your net profit (or loss)? Ignore transaction costs.

4)Briefly describe (one sentence) the difference between an American style option and a European style option.

Explanation / Answer

1)SSH inc stock currently sells for 18 dollars. A put option on the stock has a strike price of 11 dollars and currently sells at 4.33 dollars. What is the time value of the option?

Answer:

Calculation of Time Value of the Option:

Formula :

Time Value = Option Price - Intrinsic Value

Option Price = $4.33

Intrinsic Value of Put Option = Strike Price - Stock Price

Put option shall not be exercised because the current price is more than strike price., Hence Intrinsic value shall be 0.

  Hence,

Time Value = 4.33 – 0 = $4.33

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