Before expiration, the time value of an at the money put option is always

Question

BlackTom AI · Accepted Answer

Consider the concept of option value and what it comprises before expiration.
Option A states the time value is equal to zero for an at-the-money put. In reality, even though the intrinsic value of an ATM put is zero (S = K), there is still time value because there is still a possibility that the stock price will move and the option could end up in-the-money before expiration. Therefore, the time value is not zero.
Option B suggests the time value equals the stock price minus the exercise price. This expression actually resembles the intrinsic value component for a call option, or the general difference S − K, but for puts the intrinsic value is max(K − S, 0). At ATM, S = K, so intrinsic value is zero, and the time value is not given by S − K. Thus this option is incorrect.
Option C posits that the time value is negative. Time value cannot be negative because it represents the probability-weighted potential for the option to gain value before expiration, which cannot be a negative quantity by definition.
Option D claims the time value is positive. Since an ATM put has no intrinsic value at current price but retains volatility and time until expiration, there is always some chance it ends up in-the-money; this generates positive time value prior to expiration. This aligns with the standard decomposition of option premium into intrinsic value plus time value (when applicable).
Option E 'none of the above' would only be correct if none of the prior statements were true, but since D is correct, E is false.
In summary, before expiration, an at-the-money put option carries positive time value due to the remaining time and volatility, even though its intrinsic value is zero at ATM.

Before expiration, the time value of an at the money put option is always单项选择题

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