Which of the following statements best describes the nature of option time value decay?
A) time value decays more rapidly as the stock price approaches being at-the-money
B) time value decays more rapidly as expiration approaches
C) time value decays more rapidly for put option than call options
D) time value decay does not occur for collar option strategies
E) time value decay is detrimental for a trader who is short call options

Question

Quizplus · Accepted Answer

Option time value decay refers to the decrease in the value of an option as it approaches expiration. This decay occurs because the likelihood of the option moving in the desired direction decreases as time passes. Therefore, option time value decays more rapidly as expiration approaches.

Which of the Following Statements Best Describes the Nature of Option