Question

1. Which of the following call options is likely to have the highest option price?

   		Option 1: 3 month to expiration and strike price = $100
   		Option 2: 3 month to expiration and strike price = $105
   		Option 3: 6 month to expiration and strike price = $100
   		Option 4: 6 month to expiration and strike price = $105

Answer 1

Option Value is calculated by Price - Strike Price. The Value increases either when the stock price increases or when the stike price is taken lower. Also, the value of option with higher duration/ maturity will have more value because they have more time value of money.

So, the option with 6 months to expire will have higher value, also the the strike Price of 100 is lower than 105. So the value of option of sttrike price 100 will be higher.

Option 3 is correct.