Question

American call and put premiums:__________

a) should be exactly equal to their time value.
b) should be at least as large as their intrinsic value.
c) should be no larger than their speculative value.
d) should be at no larger than their moneyness.

Answer 1

B) Should be at least as large as their intrinsic value.

Step-by-step explanation:

American call and put option premiums are one of the options contracts, which allows investors to buy or sell the stock options before the maturity date. It is not referred to as the option related to geographical location, however, it is only applied to the rights of execution.

There are four variables to specify the contract:-

• Underlying asset.
• Premium
• Strike price.
• Maturity data.

Intrinsic value is the difference between underlying assets and strike price, which can not be negative and the premium is the price paid during buying and selling of options. Therefore, American call and put premiums should be at least as large as their intrinsic value.