Which of the following statements is true?
A) The option premium is paid by the option writer.
B) The further that an option is in the money, the lower the option's intrinsic value.
C) An option's premium is usually below its intrinsic value.
D) When a call's exercise price is below the market price of the stock it is in the money.

Question

Quizplus · Accepted Answer

The option premium is paid by the option buyer to the option writer. The intrinsic value of an option increases the further it is in the money. An option's premium typically consists of intrinsic value plus time value, so it is not usually below its intrinsic value. A call option is considered in the money when its exercise price is below the market price of the underlying stock, making D the correct statement.

Which of the Following Statements Is True