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

A short time to expiration means there is less time for the option to gain additional value, and low volatility means there are fewer potential price movements that can increase the option's value. Therefore, this combination is likely to lead to the lowest time value.

What Combination of Variables Is Likely to Lead to the Lowest