In this workout, we are asked to split up the option premium into intrinsic value and time value for the four available options. These options all have the same underlying assets which has a current value of $75 and they are all call options. For option one, which has a strike price of $79, the intrinsic value calculation is the gain that would be made if the option could be exercised today. If this was a possibility, it would make sense for the owner of the option to exercise it, to pay the $69 strike price to take delivery of the option worth $75, which would make for them a gain equal to the difference between the current stock price of the underlying asset and the strike price on the option, giving them a gain of six. The time value is just the difference between the premium and the intrinsic value giving only $0.20, 20 cents of time value. For option two, which has a higher strike press, the owner of the option has the choice to pay $72, take delivery of the underlying assets, which it makes sense to do if it is worth $75 because that will deliver for them gain of $3 on expiration, which is the same calculation we have for the intrinsic value. Time value is the residual between the premium and the intrinsic value of 40 cents in this scenario.

Both option one and option two have time value as well as intrinsic value.

For option three, which is an at the money option, where the strike price of the option matches the current underlying asset price of 75, intrinsic value is zero. In practical terms, the owner of this option would choose not to exercise it if this was the case at expiration. So all of the premium is just time value, $.80 of time value. For option four, which is out of the money, strike price is $78, so the owner of this option can pay 78 to buy the underlying asset, if they choose to do so. If that underlying asset price was $75 they would choose not to do that and rather abandon the option, leaving zero intrinsic value and all of the premium being time value.