248 Part Ill: Put Option Strategies 
TABLE 15-1. 
Call and put options compared. 
XYZ XYZ Coll Coll XYZ Put Put 
Stock July 50 Intrinsic Time Value July 50 Intrinsic Time Value 
Price Coll Price Value Premium Put Price Value Premium 
40 1/2 0 1/2 93/4 10 -1/4* 
43 1 0 1 7 7 0 
45 2 0 2 6 5 
47 3 0 3 5 3 2 
50 5 0 5 4 0 4 
53 7 3 4 3 0 3 
55 8 5 3 2 0 2 
57 9 7 2 0 
60 101/2 10 1/2 1/2 0 l/2 
70 193/4 20 -1/4 * 1/4 0 1/4 
* A deeply in-the-money option may actually trade at a discount from intrinsic value in advance of 
expiration. 
of its options, both puts and calls. Moreover, the marketplace may at any time value 
options at a higher or lower volatility than the underlying stock actually exhibits. 
This is called implied volatility, as distinguished from actual volatility. Also, the put 
option is usually worth at least its intrinsic value at any time, and should be worth 
exactly its intrinsic value on the day that it expires. Figure 15-1 shows where one 
might expect the XYZ July 50 put to sell, for any stock price, if there are 6 months 
remaining until expiration. Compare this with the similar pricing curve for the call 
option (Figure 15-2). Note that the intrinsic value line for the put option faces in 
the opposite direction from the intrinsic value line for call options; that is, it gains 
value as the stock falls below the striking price. This put option pricing curve 
demonstrates the effect mentioned earlier, that a put option loses time value pre­
mium more quickly when it is in-the-money, and also shows that an out-of-the­
money put holds a great deal of time value premium. 
THE EFFECT OF DIVIDENDS ON PUT OPTION PREMIUMS 
The dividend of the underlying stock is a negative factor on the price of its call 
options. The opposite is true for puts. The larger the dividend, the nwre valuable the 
puts will be. This is true because, as the stock goes ex-dividend, it will be reduced in