Pricing and Valuation of Options Flashcards
1
Q
What does “Moneyness” refer to?
A
Expresses the relationship between an option’s value and its exercise price across the full range of underlying prices.
2
Q
What is a “Deep-in-the-money” option?
A
An option that is highly likely to be exercised.
3
Q
What is a “Deep-out-of-the-money” option?
A
An option that is highly unlikely to be exercised.
4
Q
What is “Time Value Decay”?
A
The process by which the time value of an option declines towards zero as the option’s expiration date is approached.
