Options Pricing
An option has a premium of $7 and an intrinsic value of $4. What is the time value?
Time Value = Premium - Intrinsic Value. Time Value = $7 - $4 = $3. This $3 represents the extra amount investors are willing to pay for the possibility of further gains before expiration.
Complete Analysis & Legal Rationale
Time Value = Premium - Intrinsic Value. Time Value = $7 - $4 = $3. This $3 represents the extra amount investors are willing to pay for the possibility of further gains before expiration.
Distractor Autopsy (Why Other Options Are Traps)
FINRA exam writers design incorrect distractors using specific calculation mistakes and regulatory misconceptions. Review why each option succeeds or fails:
Matches the verified teaching point in the explanation.
Does not match the governing securities rule described in the explanation.
Does not match the governing securities rule described in the explanation.
Does not match the governing securities rule described in the explanation.
Official Standard: Governs options accounts, approvals, and related supervisory requirements (verify current text).
Official Standard: Outline-level citation: item maps to Series 7 topic coverage. Prefer a specific FINRA/SEC/MSRB rule citation in a later author pass.