SIE practice questionmediumTime value
If an option is out of the money, what does its premium consist of?
- AStrike price
- BIntrinsic value only
- CTime value only✓ Correct answer
- DSettlement value
Explanation
Why C — Time value only
Out-of-the-money options have no intrinsic value; their premium is all time value. The other options misidentify the components of premium.
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