In reality,an option's value will equal its intrinsic value only at expiration.At all other times,the option's premium or price will exceed its intrinsic value.A major reason for this is/are _____________.

Question

Quizplus · Accepted Answer

The time value of an option is the amount by which its premium exceeds its intrinsic value. This is because options provide the holder with the right, but not the obligation, to buy or sell an underlying asset at a certain price within a certain time frame. As time passes, the probability that the option will be profitable decreases, as there is less time for the underlying asset to move in a favorable direction. Therefore, options that have more time until expiration will have a higher premium, all else being equal, reflecting their greater time value.

In Reality,an Option's Value Will Equal Its Intrinsic Value Only