Can the later option be valued only at intrinsic when the short expires?
Reveal the worked answer
No.
It still has time remaining; use an appropriate valuation or executable quote.
Why do different expirations require a different valuation question?
Read first: Read the whole multi-leg ticket, Vega
A call diagonal changes strike and expiry together. The longer lower-strike call supplies bullish exposure; the nearer higher-strike short finances part of it while limiting a fast near-term advance.
Buy a longer 95 call and sell a nearer 105 call. A ten-point strike gap does not establish a fixed ten-point maximum payoff because the two contracts do not expire together.
The short expires 2026-11-20, 45 days after entry. The long expires 2027-02-19, 136 days after entry. Opening example prices use 30% front IV and 25% back IV, continuous rate 3% and yield 1%. Ticket premiums are rounded to cents and those rounded values define opening cash.
A front-event IV decline and a back-expiry IV decline affect different rights. A single aggregate Vega cannot describe every nonparallel term-structure change. The future long-option mark also depends on remaining time, spot and the assumed volatility surface.
At the short expiry, the long option is still alive. Valuing both by intrinsic at that date deletes the very time value the calendar or diagonal purchased. The three curves therefore show alternative remaining-IV assumptions rather than one guaranteed payoff.
The demonstration uses European cash-settled valuation and assumes both legs are liquidated at the short-expiry observation. Real American equity options may be assigned earlier and create share obligations. A later option does not automatically settle an earlier assignment.
If spot rallies beyond the short strike, compare closing values before exercising. Exercising a still-live long can sacrifice extrinsic value. Each new short-call sale needs a fresh risk and thesis check.
QLT • reference spot $100 • independent illustrative prices • quote date 2026-10-06
| Action | Qty | Type | Strike | Expiry | Premium/unit | Multiplier |
|---|---|---|---|---|---|---|
| BUY | 1 | Call | 95 | 2027-02-19 | 9.16 | 100 |
| SELL | 1 | Call | 105 | 2026-11-20 | 2.34 | 100 |
The short leg reaches intrinsic at the first expiry; the long leg remains live and is revalued under each stated IV assumption. A plotted peak is not an unconditional maximum profit.
$0.65 per option contract on entry only; later liquidation/assignment/funding costs excluded.
Original rounded BSM teaching premiums, not quotes. Curves are conditional liquidation at the first expiry: short intrinsic plus the still-live long option valued with a stated remaining IV. They are not a same-expiry payoff, unconditional maximum profit or American-exercise simulation.
Buy one 2027-02-19 95 call at 9.16; sell one 2026-11-20 105 call at 2.34. Both represent 100 units. Opening debit is $682.00 before the illustrative 1.30 entry fees.
At the short-expiry observation, keep stock at 100 and assume 25% IV for the remaining long. Price the long with 91 days left and subtract the short's intrinsic liability. After subtracting the original debit, modeled liquidation P/L is $121.97 before costs or $120.67 after entry fees only.
With stock unchanged but remaining IV at 18%, the result is $4.67. At 35% it is $301.14. The comparison isolates uncertainty still owned after the nearer clock ends. It does not establish a unique maximum profit or an executable fill. Exit fees, bid–ask costs and assignment can change the outcome.
Vertical: Modeled liquidation P/L per ticket (USD)
Horizontal: Underlying at the first expiry (USD)
| Underlying at the first expiry (USD) | Surviving-long IV 18% (before fees) | Surviving-long IV 25% (before fees) | Surviving-long IV 35% (before fees) |
|---|---|---|---|
| 75 | -680.803 | -668.962 | -618.696 |
| 75.5 | -680.487 | -667.026 | -613.126 |
| 76 | -680.098 | -664.856 | -607.188 |
| 76.5 | -679.624 | -662.433 | -600.868 |
| 77 | -679.049 | -659.735 | -594.153 |
| 77.5 | -678.357 | -656.74 | -587.028 |
| 78 | -677.527 | -653.426 | -579.479 |
| 78.5 | -676.538 | -649.768 | -571.492 |
| 79 | -675.366 | -645.743 | -563.056 |
| 79.5 | -673.986 | -641.326 | -554.155 |
| 80 | -672.368 | -636.491 | -544.779 |
| 80.5 | -670.482 | -631.215 | -534.914 |
| 81 | -668.294 | -625.471 | -524.549 |
| 81.5 | -665.769 | -619.233 | -513.672 |
| 82 | -662.869 | -612.476 | -502.272 |
| 82.5 | -659.555 | -605.175 | -490.339 |
| 83 | -655.785 | -597.304 | -477.863 |
| 83.5 | -651.516 | -588.839 | -464.834 |
| 84 | -646.702 | -579.755 | -451.243 |
| 84.5 | -641.3 | -570.029 | -437.082 |
| 85 | -635.262 | -559.638 | -422.344 |
| 85.5 | -628.542 | -548.56 | -407.021 |
| 86 | -621.093 | -536.774 | -391.106 |
| 86.5 | -612.868 | -524.26 | -374.594 |
| 87 | -603.823 | -511 | -357.48 |
| 87.5 | -593.914 | -496.976 | -339.759 |
| 88 | -583.096 | -482.172 | -321.427 |
| 88.5 | -571.33 | -466.573 | -302.481 |
| 89 | -558.577 | -450.166 | -282.918 |
| 89.5 | -544.802 | -432.939 | -262.736 |
| 90 | -529.971 | -414.883 | -241.934 |
| 90.5 | -514.056 | -395.988 | -220.512 |
| 91 | -497.031 | -376.248 | -198.468 |
| 91.5 | -478.873 | -355.658 | -175.805 |
| 92 | -459.566 | -334.214 | -152.522 |
| 92.5 | -439.095 | -311.914 | -128.622 |
| 93 | -417.45 | -288.758 | -104.107 |
| 93.5 | -394.626 | -264.747 | -78.9798 |
| 94 | -370.623 | -239.884 | -53.2441 |
| 94.5 | -345.442 | -214.173 | -26.9038 |
| 95 | -319.091 | -187.621 | 0.0367163 |
| 95.5 | -291.581 | -160.234 | 27.5724 |
| 96 | -262.927 | -132.021 | 55.6978 |
| 96.5 | -233.147 | -102.993 | 84.4071 |
| 97 | -202.263 | -73.1599 | 113.694 |
| 97.5 | -170.299 | -42.5346 | 143.552 |
| 98 | -137.282 | -11.1304 | 173.973 |
| 98.5 | -103.244 | 21.0383 | 204.951 |
| 99 | -68.2154 | 53.9561 | 236.477 |
| 99.5 | -32.2307 | 87.607 | 268.544 |
| 100 | 4.67451 | 121.974 | 301.143 |
| 100.5 | 42.4633 | 157.04 | 334.266 |
| 101 | 81.098 | 192.786 | 367.903 |
| 101.5 | 120.54 | 229.193 | 402.045 |
| 102 | 160.75 | 266.244 | 436.684 |
| 102.5 | 201.69 | 303.918 | 471.81 |
| 103 | 243.32 | 342.196 | 507.413 |
| 103.5 | 285.603 | 381.058 | 543.483 |
| 104 | 328.498 | 420.484 | 580.012 |
| 104.5 | 371.971 | 460.455 | 616.988 |
| 105 | 415.983 | 500.949 | 654.401 |
| 105.5 | 410.501 | 491.948 | 642.243 |
| 106 | 405.488 | 483.432 | 630.502 |
| 106.5 | 400.913 | 475.381 | 619.168 |
| 107 | 396.744 | 467.775 | 608.232 |
| 107.5 | 392.95 | 460.597 | 597.684 |
| 108 | 389.503 | 453.827 | 587.513 |
| 108.5 | 386.375 | 447.446 | 577.709 |
| 109 | 383.541 | 441.437 | 568.263 |
| 109.5 | 380.976 | 435.783 | 559.164 |
| 110 | 378.657 | 430.466 | 550.403 |
| 110.5 | 376.563 | 425.47 | 541.97 |
| 111 | 374.673 | 420.779 | 533.856 |
| 111.5 | 372.97 | 416.376 | 526.05 |
| 112 | 371.436 | 412.247 | 518.544 |
| 112.5 | 370.055 | 408.378 | 511.329 |
| 113 | 368.813 | 404.754 | 504.395 |
| 113.5 | 367.694 | 401.361 | 497.734 |
| 114 | 366.688 | 398.187 | 491.336 |
| 114.5 | 365.783 | 395.219 | 485.194 |
| 115 | 364.968 | 392.446 | 479.298 |
| 115.5 | 364.234 | 389.855 | 473.64 |
| 116 | 363.572 | 387.436 | 468.212 |
| 116.5 | 362.975 | 385.178 | 463.007 |
| 117 | 362.435 | 383.072 | 458.017 |
| 117.5 | 361.946 | 381.108 | 453.233 |
| 118 | 361.501 | 379.276 | 448.648 |
| 118.5 | 361.097 | 377.57 | 444.256 |
| 119 | 360.729 | 375.979 | 440.049 |
| 119.5 | 360.391 | 374.498 | 436.021 |
| 120 | 360.081 | 373.118 | 432.164 |
| 120.5 | 359.795 | 371.833 | 428.473 |
| 121 | 359.53 | 370.636 | 424.94 |
| 121.5 | 359.284 | 369.521 | 421.56 |
| 122 | 359.054 | 368.483 | 418.326 |
| 122.5 | 358.838 | 367.516 | 415.234 |
| 123 | 358.635 | 366.615 | 412.277 |
| 123.5 | 358.442 | 365.775 | 409.45 |
| 124 | 358.259 | 364.992 | 406.748 |
| 124.5 | 358.084 | 364.262 | 404.165 |
| 125 | 357.916 | 363.58 | 401.697 |
Early assignment can leave short stock alongside a long call. The long right is not the same as already-owned delivery shares; funding, borrow and dividends can matter.
Try the question before revealing its answer. These are reading checks, not trading certification or a site completion record.
No.
It still has time remaining; use an appropriate valuation or executable quote.
No.
The curve depends on an assumed future IV and liquidation date.
Read every expiry, strike and volatility assumption. A calendar has matching strikes; a diagonal changes both strike and time.
External references support definitions and conventions. Worked scenarios and prose are original. No current quotes or dealer inventory are claimed.
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