What is the time value of the ABC October 35 put option with a premium of 2.25 when the stock trades at $35.25?

To determine the time value of the ABC October 35 put option, understanding the intrinsic and time value of options is crucial. The intrinsic value of a put option is calculated as the difference between the strike price and the current stock price, but it can never be less than zero.

In this case, the strike price of the put option is $35, and the current stock price is $35.25. Since the stock price is above the strike price, the put option has no intrinsic value—it is considered "out of the money." Therefore, the intrinsic value is $0.

The premium of the put option is given as $2.25. The time value is essentially the premium minus any intrinsic value. Since the intrinsic value is $0, the time value is simply the entire premium of $2.25.

When considering the time value in a total cost context, it's common to convert it to a dollar amount based on shares since options typically represent 100 shares per contract. Thus, the time value in total dollars would be calculated as $2.25 multiplied by 100 shares, resulting in $225.

This means the time value of the ABC October 35 put option reflects the potential for gain from price movement before the option expires