SIE Exam Question 238: Answer and Explanation

Question: 238

Call option contracts are considered to have intrinsic value:

• A. when exercise price exceeds CMV
• B. when the option holder has exercised the option
• C. when CMV is equal to exercise price
• D. when CMV exceeds exercise price

Correct Answer: D

Explanation:

D: Call option contracts go 'in the money' (intrinsic value) when the current market value of the underlying security exceeds the exercise price (strike price) of the option. If a call option's exercise price is $20, and the underlying stock is trading at $25, the intrinsic value of the call option is $5.