Suppose You Purchase a Call Option to Purchase General Motors

question 101

Essay

Suppose you purchase a call option to purchase General Motors common stock at $80 per share in March. The current price of GM stock is $83 and the time value of the option is $5. What is the intrinsic value of the option? As the expiration date approaches, what will happen to the size of the time value of the option?

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Definitions:

Freud

Sigmund Freud, the founding father of psychoanalysis, a method for treating psychopathology through dialogue between a patient and a psychoanalyst.

Psychic Energy

A concept in psychoanalytic theory referring to the energy of the mind's workings, driving thoughts, emotions, and behaviors.

Oedipus Complex

A Freudian concept involving a child's unconscious sexual desire for the parent of the opposite sex and jealousy towards the same-sex parent.

Freud

Austrian neurologist and the founder of psychoanalysis, a clinical method for treating psychopathology through dialogue between a patient and a psychoanalyst.