The time premium paid for an option reduces the option's potential leverage.

Name: The time premium paid for an option reduces the option's potential leverage.
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Question

Quizplus · Accepted Answer

The time premium is the amount paid over the intrinsic value of the option, which decreases as the expiration date approaches, reducing the leverage effect since more capital is required for an investment that may yield less return as time erodes the premium.

The Time Premium Paid for an Option Reduces the Option's