Which of the following is correct regarding a call option?
A)The intrinsic value of a call option is the greater of zero and (K- S), the difference between the market price and the strike price.
B)The time value of an option reflects the probability that the future market price of the underlying instrument will not exceed the strike price.
C)The time value decreases with the length of time to expiration and the volatility of the underlying instrument (such as the share price).
D)The time value is always positive until the option expires, so the total value of an unexpired option is always greater than the intrinsic value.

Question

Quizplus · Accepted Answer

The time value of an option is indeed always positive until the option expires, reflecting the potential for the option to gain in value. This means the total value of an option (intrinsic value plus time value) is always greater than just its intrinsic value before expiration.

Which of the Following Is Correct Regarding a Call Option