The difference between the price of the underlying asset and the exercise price of an option is called __________.

The intrinsic value of an option is the difference between the current market price of the underlying asset and the option’s exercise (strike) price. If an option allows buying the asset below the current market price, or selling it above... Read More

1 FINANCE MCQS

The difference between the price of the underlying asset and the exercise price of an option is called __________.

  • Extrinsic value of European option
  • Intrinsic value of option
  • Extrinsic value of option
  • Intrinsic value of European option
Correct Answer: B. Intrinsic value of option

Detailed Explanation

The intrinsic value of an option is the difference between the current market price of the underlying asset and the option’s exercise (strike) price. If an option allows buying the asset below the current market price, or selling it above the market price, it has intrinsic value. This value reflects the immediate profit an option holder could earn if the option were exercised right away. In contrast, the extrinsic value comes from factors like time remaining until expiration and market volatility.

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