Which element contributes most to the premium of an option just before it expires?

The correct answer focuses on intrinsic value, which plays a crucial role in determining the premium of an option, especially as it approaches expiration. Intrinsic value is defined as the difference between the underlying asset's current market price and the strike price of the option. When an option is nearing its expiration date, the time left for the option to gain additional value diminishes, which often leads to a notable increase in the significance of intrinsic value.

As expiration approaches, the option's time value—representing the potential for price movement—becomes less relevant, as there is limited time for the underlying asset's price to change. Market demand for the option can influence premium levels but is generally secondary to intrinsic value at this late stage. Therefore, right before expiration, the premium is primarily driven by how much in-the-money the option is, making intrinsic value the most significant factor.