CFA Practice Question

There are 206 practice questions for this study session.

CFA Practice Question

When is the intrinsic value of a call option negative?

A. When the stock price (ST) is greater than the exercise price (X)
B. When the stock price (ST) is less than the exercise price (X)
C. When the stock price (ST) is equal to the exercise price (X)
D. Never
Correct Answer: D

Since the owner of a call option is not obliged to exercise it when it is out of the money, the lowest intrinsic value the option can have is zero.

User Contributed Comments 13

User Comment
vadimmuchnik very tricky, thanks for heads up!
surob Agreed. Tricky one
krisscfa Good one
TammTamm Extremely tricky
rfvo Yip, keep em coming!! N1
magicchip shheeeesh.. gotta read the question.
good one.
group Intrinsic value cannot be negative - by definition
mrushdi For the writer it can be negative.
Shammel Great Question!
endurance marvelous question, indeed!
johntan1979 OWH! Right... thanks to this question, I won't fall for the same trick again if it comes out in the exam.
jonan203 it is impossible to have a negative value with this formula.

Call = Max(X-ST, 0)

where:
X = Strike
ST = stock price
Inaganti6 2MRUSHDI short call was not mentioned !
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