Which of the following statements is correct?
A)If the underlying stock does not pay a dividend, it does not make good economic sense to exercise a call option prior to its expiration date, even if this would yield an immediate profit.
B)Call options generally sell at a price greater than their exercise value, and the greater the exercise value, the higher the premium on the option is likely to be.
C)Call options generally sell at a price below their exercise value, and the greater the exercise value, the lower the premium on the option is likely to be.
D)Call options generally sell at a price below their exercise value, and the lower the exercise value, the lower the premium on the option is likely to be.

Question

Quizplus · Accepted Answer

Exercising a call option early (before expiration) for a stock that does not pay dividends typically does not make economic sense because it forfeits the time value of the option, even if there's an immediate profit. The value of an option is not just in its intrinsic value (difference between stock price and strike price) but also in its time value, which is lost upon early exercise.

Which of the Following Statements Is Correct