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SIE: Options
SIE practice questionmediumOption premiums

Which option is most likely to have the highest premium, all else equal?

  1. AA put that is deep in the money but close to expiration
  2. BA call that is far out of the money
  3. CA call with the longest time until expiration✓ Correct answer
  4. DA call with a short time to expiration
Explanation

Why CA call with the longest time until expiration

Longer time adds more time value, boosting the premium. Deep in-the-money or short-dated out-of-the-money options have less time value.

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