The time premium tends to reduce the potential leverage an option offers.

Question

The time premium tends to reduce the potential leverage an option offers.​

Quizplus · Accepted Answer

The time premium is the portion of an option's price that is based on the time left until its expiration. As the expiration date approaches, the time premium becomes smaller, reducing the overall premium and limiting the potential leverage an option can provide. Therefore, option leverage tends to become less enticing as an option approaches expiration.

The Time Premium Tends to Reduce the Potential Leverage an Option