Finra Exam Series-7 Topic 5 Question 95 Discussion

Actual exam question for Finra's Series-7 exam

Question #: 95
Topic #: 5

In comparing the premium cost of a LEAPS option with a premium of a traditional option on the same security and same strike price, which of the following is generally true?

Athe premiums will be approximately the same

Bthe LEAPS premium will be higher than the traditional option premium

Cthe premium for the traditional option will be higher than the LEAPS option premium

DLEAPS premiums do not consider time value

Show Suggested Answer

Suggested Answer: B

the LEAPS premium will be higher than the traditional option premium. Because LEAPS have a longer time until expiration than traditional options, the premium should be higher.

by Valentine at Aug 24, 2024, 09:51 AM

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Sunshine

2 months ago

Haha, LEAPS premiums 'don't consider time value'? What kind of nonsense is that? Of course they do, that's like the whole point of LEAPS!

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Desmond

2 months ago

Haha, LEAPS premiums 'don't consider time value'? What kind of nonsense is that? Of course they do, that's like the whole point of LEAPS!

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Patrick

2 months ago

C) the premium for the traditional option will be higher than the LEAPS option premium

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Carlene

2 months ago

B) the LEAPS premium will be higher than the traditional option premium

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Noah

2 months ago

A) the premiums will be approximately the same

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Page

3 months ago

I don't know, I'm kind of torn on this one. The traditional option might have a higher premium if the time value component is really small compared to the intrinsic value.

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Ora

3 months ago

Yeah, LEAPS options usually have higher premiums because of the longer expiration date.

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Demetra

3 months ago

I think the LEAPS premium will be higher than the traditional option premium.

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Lizette

3 months ago

That's a good point, the time value of LEAPS options could make their premiums higher.

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Shawna

3 months ago

But LEAPS options have longer expiration dates, so they should be more expensive, right?

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Angelica

3 months ago

Yeah, that's what I was thinking too. The LEAPS option gives you more time to play with, so the premium should reflect that.

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Sheridan

3 months ago

Yeah, that makes sense. Time value is an important factor in option pricing.

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Shad

3 months ago

LEAPS options are usually more expensive because they give you more time.

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Lizette

3 months ago

I disagree, I believe the LEAPS premium will be higher than the traditional option premium.

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Shawna

3 months ago

I think the premium for the traditional option will be higher than the LEAPS option premium.

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Dona

3 months ago

The LEAPS option should have a higher premium, right? I mean, it's got a longer time to expiration, so the time value component is going to be bigger.

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Cheryl

2 months ago

The time value component does play a big role in determining the premium of a LEAPS option.

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Nieves

3 months ago

LEAPS options do have a higher premium due to the longer time to expiration.

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Francisca

3 months ago

Yes, that's correct. The LEAPS premium will be higher than the traditional option premium.

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