What combination of variables is likely to lead to the lowest time value?
A) Short time to expiration and low volatility
B) Long time to expiration and high volatility
C) Short time to expiration and high volatility
D) Long time to expiration and low volatility

Question

Quizplus · Accepted Answer

When time to expiration is short, there is less time for the underlying asset to move, and hence less chance for volatility. Low volatility further ensures that the price of the option remains relatively stable, leading to lower time value.

What Combination of Variables Is Likely to Lead to the Lowest