SIE practice questionmediumOption premiums
Which two factors primarily impact the premium of an option?
- AIntrinsic value and time to expiration✓ Correct answer
- BUnderlying stock’s dividend and interest rates
- CBid-ask spread and time of day
- DIssuer’s credit rating and strike price
Explanation
Why A — Intrinsic value and time to expiration
Premiums are affected by intrinsic value and time to expiration. Dividends and rates can have minor effects, but A lists the main components. C and D are largely irrelevant.
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