Before expiration the time value of an in the money stock option is always
A) equal to zero.
B) positive.
C) negative.
D) equal to the stock price minus the exercise price.
E) none of these.

Question

Quizplus · Accepted Answer

The time value of an in the money stock option is the difference between the option premium and the intrinsic value. As the option approaches expiration, the intrinsic value will remain constant (equal to the difference between the stock price and exercise price) while the premium will decrease. Therefore, the time value will decrease and approach zero, but it will always be positive until expiration.

Before Expiration the Time Value of an in the Money