Which of the following best describes the intrinsic value of an option?
A) The value it would have if the owner were forced to exercise immediately
B) The Black-Scholes-Merton price of the option
C) The lower bound for the option's price
D) The amount paid for the option

Question

Quizplus · Accepted Answer

The intrinsic value of an option is the value it would have if the owner were forced to exercise immediately. It is based on the difference between the current price of the underlying asset and the strike price of the option. If the current price of the underlying asset is higher than the strike price, the option has intrinsic value. If the current price is lower than the strike price, the option has no intrinsic value.

Which of the Following Best Describes the Intrinsic Value of an Option