What is the reason for an investor to pay for a zero intrinsic value option?
A) there is always a chance that the spot rate will move before expiration putting the option in the money
B) there is always a chance that the strike price for options with different maturities will increase
C) investors are typically not investing in zero intrinsic value options
D) the premiums for zero intrinsic value options are very small

Question

Quizplus · Accepted Answer

Even though a zero intrinsic value option may not be immediately profitable, there is always a chance that the spot rate will move before expiration putting the option in the money. Therefore, an investor may be willing to pay for the option in the hopes of a potential payoff in the future.

What Is the Reason for an Investor to Pay for a Zero