The divergence between an option's intrinsic value and its market value is usually greatest when ________.
A) the option is deep in the money
B) the option is approximately at the money
C) the option is far out of the money
D) time to expiration is very low

Question

Quizplus · Accepted Answer

The divergence between an option's intrinsic value and its market value is usually greatest when the option is approximately at the money. This is because the uncertainty about whether it will end up in or out of the money at expiration is highest, leading to a greater impact of time value and implied volatility on the option's price.

The Divergence Between an Option's Intrinsic Value and Its Market