The difference between the strike price of an option and spot price of the item being hedge at any one time represents the option's:
A)time value.
B)intrinsic value.
C)fair value.
D)premium.

Question

The difference between the strike price of an option and spot price of the item being hedge at any one time represents the option's:
A)​time value.
B)​intrinsic value.
C)​fair value.
D)​premium.

Quizplus · Accepted Answer

The difference between the strike price of an option and spot price of the item being hedged is known as the intrinsic value of the option. This value reflects the price advantage of exercising the option immediately rather than waiting until expiration. The time value of an option is the amount by which its premium exceeds its intrinsic value and is determined by factors such as the time remaining until expiration and the volatility of the underlying asset. Fair value refers to the theoretical value of an option based on factors such as the current price of the underlying asset, the option's strike price, time to expiration, and interest rates. Premium is the price that an option buyer pays to an option seller for the right to buy or sell the underlying asset according to the terms of the option contract.

The Difference Between the Strike Price of an Option and Spot