Farm Progress is part of the Informa Markets Division of Informa PLC

This site is operated by a business or businesses owned by Informa PLC and all copyright resides with them. Informa PLC's registered office is 5 Howick Place, London SW1P 1WG. Registered in England and Wales. Number 8860726.

Serving: United States

Back to School With Marketing Guru Ed Usset #41

Let’s assume that December corn futures are trading at $3.70 per bushel. You pay a premium of 25 cents per bushel for a 360 December put. What is the time value of this option?

a.    10 cents per bushel

b.    25 cents per bushel

c.    $3.60 per bushel

d.    the time value cannot be calculated


Answer (b): An option premium is made up of two components; intrinsic value (if any) and time value. In this case, when the futures price ($3.70) is trading higher than the strike price of the put (360), there is no intrinsic value – the option is trading 10 cents “out-of-the-money.” If there is no intrinsic value, then the entire premium of 25 cents per bushel can be viewed as time value.

Hide comments


  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.