Intrinsic Value of Options
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Questions and Answers

What does the intrinsic value of an option represent?

  • The amount by which the option is in-the-money (correct)
  • The time value of the option
  • The total value of the option
  • The premium paid for the option

    • Why can the intrinsic value of an option never be negative?

  • Due to the time value component
  • An option holder is not bound to exercise the option if it results in a loss (correct)
  • Intrinsic value is always positive
  • Because at-the-money options have zero intrinsic value

    • For a call option, how is the intrinsic value calculated?

  • $S / X$
  • $S * X$
  • $S + X$
  • $S - X$ (correct)

    • What happens to the intrinsic value of a put option when it is in-the-money?

    <p>It becomes positive</p> Signup and view all the answers

    Why would the intrinsic value of a call option have a minimum possible value of zero?

    <p>To avoid exercising under a disadvantageous condition</p> Signup and view all the answers

    What does the intrinsic value of an in-the-money option indicate?

    <p>A profit for the option holder</p> Signup and view all the answers

    If an out-of-the-money call option has an intrinsic value, what does this imply?

    <p>$S &lt; X$</p> Signup and view all the answers

    Why do at-the-money options have zero intrinsic value?

    <p>$S = X$</p> Signup and view all the answers

    How is the intrinsic value different from the time value of an option?

    <p>'Intrinsic value' refers to real worth, 'time value' refers to potential worth</p> Signup and view all the answers

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