Question

At expiration, the time value of an in-the-money call option is always

A) positive
B) none of the options are correct
C) equal to the stock price minus the exercise price
D) negative
E) equal to zero

Answer 1

At expiration, the time value of an in-the-money call option is always equal to zero, as there is no remaining time for the stock to fluctuate in price.

Step-by-step explanation:

The student has asked about the time value of an in-the-money call option at expiration. The time value of any option represents the extra amount an investor is willing to pay over its intrinsic value, based on the possibility that the stock price may move favorably before the expiration date. However, as we approach the expiration date of an option, the time value approaches zero because there's less time for the stock price to fluctuate.

Therefore, at expiration, the time value of an in-the-money call option is always equal to zero. The intrinsic value of an in-the-money call option is calculated as the difference between the stock price and the exercise price. Since there is no more time for potential price movement, the time value component drops to zero.

Answer 2

At expiration, the time value of an in-the-money call option is always equal to zero, as there is no remaining time for the stock to fluctuate in price.

Step-by-step explanation:

The student has asked about the time value of an in-the-money call option at expiration. The time value of any option represents the extra amount an investor is willing to pay over its intrinsic value, based on the possibility that the stock price may move favorably before the expiration date. However, as we approach the expiration date of an option, the time value approaches zero because there's less time for the stock price to fluctuate.

Therefore, at expiration, the time value of an in-the-money call option is always equal to zero. The intrinsic value of an in-the-money call option is calculated as the difference between the stock price and the exercise price. Since there is no more time for potential price movement, the time value component drops to zero.