Other things being equal, after an option first trades in the market:
A) its time value begins to decline and approaches zero as time gets closer to expiration.
B) its time value increases eventually reaching intrinsic value at expiration.
C) its time value increases if it is a call and decreases if it is a put.
D) if it is out of the money, it will have no time value.

Question

Quizplus · Accepted Answer

Time value of an option represents the extra amount an investor is willing to pay over the intrinsic value, based on the possibility that the option could increase in value before expiration. As the expiration date approaches, the likelihood of the option increasing in value decreases, causing the time value to decline towards zero.

Other Things Being Equal, After an Option First Trades in the Market