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right here were going to be going over accounting for call or put options as a hedging investment and will be based on the intrinsic value or the fair value of the option our example will be for a call option here where we have a varying commodity price and then we have a strike price or an exercise price that we can purchase this commodity at providing we buy an option now this option is can be broken down into two components here the intrinsic value component and a time value component now in the intrinsic value of the option is its value here if this option work exercise today in the time value of the option is the amount of which the price of this option exceeds the intrinsic value for our example were going to go through each period so we didnt exercise this absent well start at the purchase date of the option and then well go through the expiration date of the option and then well be given here the change in the commodity price for each period and then this commodity strike