Canadian Securities Course (CSC) Level 1 Practice Exam

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What is Time Value?

The value of assets traded on the stock exchange.
The value of certainty aka the portion of the option contract that is ITM.
It is the value of uncertainty. Calculated as The option's premium minus the intrinsic value.
Price of Apple stock at a specific point in time.

The correct answer is: It is the value of uncertainty. Calculated as The option's premium minus the intrinsic value.

Time value in options trading refers to the value that an option buyer is willing to pay above the intrinsic value of the option for the potential of the option to increase in value before it expires. Option C is correct because it accurately describes time value as being calculated by subtracting the intrinsic value from the total premium of the option. This value represents the uncertainty surrounding the option's potential to gain more value before expiry. Options A, B, and D are not correct because they do not accurately define time value. Option A mistakenly refers to the value of assets traded on the stock exchange, Option B incorrectly ties time value to certainty and being in-the-money (ITM), and Option D provides the price of Apple stock at a specific point in time, which is not related to options trading or time value.