Can an ITM Option Have a Negative Extrinsic Value?
No, an option cannot have a negative extrinsic value. The option's premium is the sum of its intrinsic value and its extrinsic value.
Since the minimum theoretical price for an option is zero, and intrinsic value is also non-negative, the extrinsic value must be zero or positive. If an option were to trade below its intrinsic value, it would present an immediate, risk-free arbitrage opportunity.
