In financial planning, what will the highest option price result in__________?
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Answer: A. Longer option period
Explanation
Higher option prices correspond to a longer remaining time to expiration. Extended time horizons increase the probability of favorable price movements. Time value is a major component determining total option contract pricing. Options give holders the right to buy or sell underlying assets. Option pricing models include volatility, strike price, and time to expiry. Time value decays progressively as the expiration date approaches rapidly.
Traders pay higher premiums for long-term LEAPS contracts compared to options. Option sellers demand higher compensation for bearing risk over extended periods. Strategic hedging requires evaluating how expiration timelines affect option costs. Smaller option period reduces time value and lowers the option price. Lesser price contradicts the positive relationship between duration and value. Higher price is the descriptive outcome rather than the structural cause.
- Subject
- Accounting and Finance
- Category
- Finance
- Topic
- —
- Difficulty
- medium
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