Which of the following is correct?
A) Intrinsic value = Option premium + Time value
B) Option premium = Intrinsic value + Time value
C) Intrinsic value = Underlying asset price + Time value
D) Option premium = Intrinsic value + Underlying asset price

Question

Quizplus · Accepted Answer

Option premium is the total cost of an option, which is the sum of its intrinsic value (the difference between the underlying asset's current price and the strike price of the option, for in-the-money options) and its time value (the additional amount that traders are willing to pay for the possibility that the option may become profitable due to changes in the underlying asset's price over time).

Which of the Following Is Correct