Which one of the following statements is true?
A)A call with a strike price of $25 and a stock price of $23 has positive intrinsic value.
B)A European style option is more valuable than an American style option.
C)An American style out-of-the-money call option can have a positive value.
D)A $40 put option has more intrinsic value than a $50 put option on the same underlying asset.
E)The time value of an option is equal to the intrinsic value minus the option premium.

Question

Quizplus · Accepted Answer

An American style out-of-the-money call option can have a positive value due to the time value of the option. The other statements are false. A call option is in-the-money when the stock price is higher than the strike price, so in this case, the call with a strike price of $25 and a stock price of $23 has no intrinsic value. A European style option is less valuable than an American style option because it cannot be exercised until the expiration date. A $50 put option is in-the-money when the stock price is lower than the strike price, so it has more intrinsic value than a $40 put option. The time value of an option is equal to the option premium minus the intrinsic value.

Which One of the Following Statements Is True