The value of a call option increases as the time to expiration increases because:
A) the exercise price continually decreases.
B) opportunity increases to surpass exercise price.
C) dividends accumulate while waiting to be paid.
D) the option can be repeatedly exercised.

Question

Quizplus · Accepted Answer

As the time to expiration increases, the opportunity for the underlying asset to increase in value and surpass the exercise price also increases. This increases the likelihood that the call option will be exercised, making it more valuable. Option A is incorrect as the exercise price does not decrease over time. Option C is also incorrect as dividends do not accumulate on call options. Option D is incorrect as the option can only be exercised once.

The Value of a Call Option Increases as the Time