Section 4

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Section 4

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1 point

1. Which of the following correctly represents the formula for an option’s premium?

1 point

A. Premium = Strike Price + Volatility

B. Premium = Intrinsic Value + Extrinsic Value

C. Premium = Time to Expiration × Volatility

D. Premium = Stock Price − Strike Price

2. Which statement is TRUE about intrinsic value?

1 point

A. OTM options always have intrinsic value

B. ATM options have a small amount of intrinsic value

C. Only ITM options have intrinsic value

D. Both ITM and ATM options have intrinsic value

3. A call option has intrinsic value when:

1 point

A. Strike price = stock price

B. Stock price < strike price

C. Stock price > strike price

D. Stock price is unchanged

4. AAPL is trading at $185. You hold a $180 call priced at $7.00.

What is the extrinsic value?**

1 point

A. $1.00

B. $2.00

C. $5.00

D. $7.00

5. Tesla trades at $200. You own a $210 put that costs $14.00.

What is the intrinsic value?**

1 point

A. $0

B. $4

C. $10

D. $14

6. An OTM option’s premium consists of:

1 point

A. Only intrinsic value

B. Only extrinsic value

C. Mostly intrinsic value

D. A mix of both intrinsic and extrinsic value

7. Which statement correctly describes extrinsic value?

1 point

A. It is the guaranteed profit from exercising the option today

B. It is always zero for ATM options

C. It reflects time, volatility, and future potential

D. It disappears only on expiration day

8. True or False:

Extrinsic value becomes zero at expiration.

1 point

A. True

B. False

9. True or False:

Intrinsic value can be negative if the stock moves against your strike.

1 point

A. True

B. False

10. If an option is ATM, which of the following statements is correct?

1 point

A. It has intrinsic value but no extrinsic value

B. It has no intrinsic value but full extrinsic value

C. It has both intrinsic and extrinsic value

D. It has neither intrinsic nor extrinsic value

11. Netflix trades at $500. The $500 call costs $12.

What type of value is the entire $12?**

1 point

A. Intrinsic value

B. Extrinsic value

C. Both intrinsic and extrinsic

D. None

12. Which analogy best explains extrinsic value?

1 point

A. Buying a product at a discount today

B. Paying extra for a plane ticket because the flight is soon

C. Selling a coupon for the same price every day

D. Paying rent monthly

13. Microsoft trades at $350. The $340 put has a premium of $10.

What is the intrinsic value?**

1 point

A. $0

B. $10

C. $20

D. $30

14. If a call option is deeply ITM, which statement is MOST accurate?

1 point

A. It has low intrinsic value and high extrinsic value

B. It has high intrinsic value and low extrinsic value

C. It has no intrinsic value

D. Its extrinsic value increases as expiration approaches

15. Scenario:

A stock trades at $100.
You see two call options:

$80 call priced at $23

$100 call priced at $5

Which statement is correct?

1 point

A. Both options have the same intrinsic value

B. The $80 call has more intrinsic value but less extrinsic value

C. The $100 call has intrinsic value

D. The $80 call’s entire premium is extrinsic value

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