Multiple choice general knowledge math & puzzles

An investor purchases a 1-month out-of-the-money American call option on a stock. A week later, the stock price is less than the call option strike price. The time value of the option is most likely:

  1. Zero.

  2. A positive amount.

  3. A negative amount

  4. none of the above
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

An out-of-the-money option has zero intrinsic value. However, because there is still time left before expiration (one month minus one week), it retains a positive time value reflecting the probability of becoming profitable.

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