SIE practice questionmediumOptions Accounts and Time Value
Which statement is TRUE regarding time value in an investor’s options account?
- ATime value refers to the premium exceeding the intrinsic value.✓ Correct answer
- BTime value only exists for out-of-the-money options.
- CTime value is equivalent to the strike price.
- DTime value is the same as the current market price of the option.
Explanation
Why A — Time value refers to the premium exceeding the intrinsic value.
Time value is the portion of the premium above intrinsic value. B is false—time value exists in both in- and out-of-the-money options. C and D do not define time value.
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