The intrinsic value of a long call option:
A) Falls and rises with the price of the underlying commodity, but is always positive
B) Rises if the price of the underlying commodity falls and vice versa
C) Depends solely on the volatility of the price of the underlying commodity
D) Becomes negative if the market price of the underlying commodity falls below the strike price of the option

Question

Quizplus · Accepted Answer

The intrinsic value of a long call option is the difference between the market price of the underlying commodity and the strike price of the option. As the market price of the underlying commodity rises, the intrinsic value of the option also rises. However, regardless of whether the market price rises or falls, the intrinsic value of a long call option is always positive (or zero if the market price falls below the strike price). Therefore, A is the correct choice.

The Intrinsic Value of a Long Call Option