Options · Question 9 of 12
Which statements about the price of an option are correct?
2 answers are correct. Medium
Show answer
Answer
- A A call's intrinsic value is underlying minus strike price, at least zero
- C It consists of intrinsic value and time value
Explanation
The intrinsic value is the advantage of immediate exercise and cannot be negative. The time value pays for the chance that the underlying will still move favourably before expiry. It melts away to zero by the expiry date.