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Questions and Answers
What does the intrinsic value of an option represent?
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?
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?
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?
What happens to the intrinsic value of a put option when it is in-the-money?
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Why would the intrinsic value of a call option have a minimum possible value of zero?
Why would the intrinsic value of a call option have a minimum possible value of zero?
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What does the intrinsic value of an in-the-money option indicate?
What does the intrinsic value of an in-the-money option indicate?
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If an out-of-the-money call option has an intrinsic value, what does this imply?
If an out-of-the-money call option has an intrinsic value, what does this imply?
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Why do at-the-money options have zero intrinsic value?
Why do at-the-money options have zero intrinsic value?
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How is the intrinsic value different from the time value of an option?
How is the intrinsic value different from the time value of an option?
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