SIE practice questionmediumOptions - Time Value
A put option is trading at $6 while its intrinsic value is $4. What is the time value of the option?
- A$0
- B$10
- C$4
- D$2✓ Correct answer
Explanation
Why D — $2
Time value = premium ($6) - intrinsic value ($4) = $2. $10 is too high, $4 is intrinsic, and $0 would be for expired.
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