The Value of a Call Option Increases as the Time

question 30

Multiple Choice

The value of a call option increases as the time to expiration increases because:

• A) the exercise price continually decreases.
• B) the opportunity increases for the stock price to surpass the exercise price.
• C) the dividends accumulate while waiting to be paid.
• D)the option can be repeatedly exercised.

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Definitions:

Exercise Price

The price at which the holder of an option can buy or sell the underlying asset.

Time Value

The portion of an option's premium that is attributable to the amount of time remaining until the expiration of the option contract.

At-The-Money

A situation in options trading where the option's strike price is equal to the market price of the underlying asset.

Call Option

A financial contract that gives the buyer the right, but not the obligation, to buy an asset at a specified price within a specific time period.