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.
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?