The time value of the option can best be defined as (excluding its intrinsic value):
A)the commission earned by a broker.
B)the fee earned for the potential benefits from buying the option.
C)the service fee charged by the SEC for regulating the option market.
D)the fee paid for the potential benefits from buying an option.

Question

Quizplus · Accepted Answer

The time value of an option refers to the amount a buyer is willing to pay for the possibility that the option will become more valuable in the future. This potential for increased value is based on a variety of factors including the underlying asset's price movements, time to expiration, volatility, and other market conditions. The fee paid by the buyer for the potential benefits from buying an option is related to the option's time value.

The Time Value of the Option Can Best Be Defined