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What is the time value of a call option? Of a put option? What happens to the

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What is the time value of a call option? Of a put option? What happens to the time value of a call option as the maturity increases? What about a put option?

Maturity
Maturity is the date on which the life of a transaction or financial instrument ends, after which it must either be renewed, or it will cease to exist. The term is commonly used for deposits, foreign exchange spot, and forward transactions, interest...
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The time value of both a call option and a put option is the diffe...View the full answer


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Fundamentals of Investments Valuation and Management

Fundamentals of Investments Valuation and Management

ISBN: 978-0077283292

5th edition

Authors: Bradford D. Jordan, Thomas W. Miller

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A call option is a type of financial contract that gives the holder the right, but not the obligation, to buy an underlying asset (such as a stock, commodity, or currency) at a specified price (called the strike price) within a specified period of time. When an investor purchases a call option, they are essentially betting that the price of the underlying asset will rise above the strike price before the option\'s expiration date. If the price of the asset does rise above the strike price, the investor can exercise the option by buying the asset at the strike price and then selling it at the higher market price, thereby earning a profit. Call options are often used as a speculative investment strategy, as they allow investors to potentially profit from the upward movement of an asset without having to actually own the asset itself. They are also commonly used as a hedging tool to protect against potential losses in a portfolio.

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