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Option contracts

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › Option contracts

  • This topic has 4 replies, 2 voices, and was last updated 5 years ago by John Moffat.
Viewing 5 posts - 1 through 5 (of 5 total)
  • Author
    Posts
  • April 24, 2020 at 3:44 pm #569160
    daivaa
    Member
    • Topics: 8
    • Replies: 6
    • ☆

    Hello,
    Can you please expand on the time value and intrinsic value as shown in the statement below:
    “The value of an option prior to expiry consists of time value, and may also consist of intrinsic value if the option is in-the-money.”
    I thought I have gotten the understanding of the options until I read the task below.

    Expected futures price = 100 -4.4-0.16=95.44

    Would 4.4% considered intrinsic value even though it’s independent factor which given in the task.
    The task 55 Daikon from BPP revision kit.

    Thank you so much for your response.
    D

    April 25, 2020 at 11:13 am #569196
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54659
    • ☆☆☆☆☆

    No – this is nothing to do with intrinsic values or time value.

    The options are the right to deal in futures on the date of the transaction.

    The futures price on the date of the transaction will be the equivalent to 4.4%, so 100 – 4.4, as adjusted by the basis which has been calculated as being 0.16.

    April 25, 2020 at 11:13 am #569197
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54659
    • ☆☆☆☆☆

    No – this is nothing to do with intrinsic values or time value.

    The options are the right to deal in futures on the date of the transaction.

    The futures price on the date of the transaction will be the equivalent to 4.4%, so 100 – 4.4, as adjusted by the basis which has been calculated as being 0.16.

    April 28, 2020 at 6:18 pm #569445
    daivaa
    Member
    • Topics: 8
    • Replies: 6
    • ☆

    Thank you for clarifying this to me.
    Much appreciated.

    April 29, 2020 at 8:17 am #569480
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54659
    • ☆☆☆☆☆

    You are welcome 🙂

  • Author
    Posts
Viewing 5 posts - 1 through 5 (of 5 total)
  • The topic ‘Option contracts’ is closed to new replies.

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