Explanation:
Call option B has a higher exercise price than option A and a lower time to expiration. Even though the exercise price is lower than that of Option C, Option C has a much longer time to expiration, and hence should be more expensive.
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Q.72 James Porter is analyzing in the following option contracts on a security with a current market price of USD 20:
Exhibit: Option Contracts
| Call Options | Exercise Price | Time to Expiration |
|---|---|---|
| A | USD 25 | 36 months |
| B | USD 29 | 8 months |
| C | USD 30 | 22 months |
Which of the above option contracts is more likely to have the lowest premium?
A
Call A
B
Call B
C
Call C
D
Either Call A or Call B
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