Intrinsic value represents the value
A) the seller could extract from the option if they exercised it immediately.
B) the buyer could extract from the option if they exercised it immediately.
C) seller pays for the time premium.
D) buyer pays for time premium.
E) below zero.

Question

Quizplus · Accepted Answer

Intrinsic value represents the difference between the current stock price and the option's strike price. If the option were to be exercised immediately, the buyer could extract this value as profit. The seller's potential profit would depend on the premium they received for selling the option, but it is not directly tied to the intrinsic value. The time premium represents the additional cost either the buyer or seller pays for the option's potential future value. Therefore, option B, "the buyer could extract from the option if they exercised it immediately," is the correct answer.

Intrinsic Value Represents the Value