You have written a call option on Walmart common stock. The option has an exercise price of $74, and Walmart’s stock currently trades at

$72. The option premium is $1.25 per contract. (LG 10-4)

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

b. What is your net profit if Walmart’s stock price decreases to $70 and stays there until the option expires?

c. What is your net profit on the option if Walmart’s stock price increases to $80 at expiration of the option and the option holder exercises the option?

 LO.1