Which one of the following defines the relationship between the value of an option and the option's time to expiration?
A) Theta
B) Vega
C) Rho
D) Delta
E) Gamma

Question

Quizplus · Accepted Answer

Theta is the parameter that defines the relationship between the value of an option and the option's time to expiration. It is also known as time decay. Theta measures the rate of decline in an option's value as its time to expiration decreases. As the time to expiration decreases, the option's value decreases due to the increased probability of the option expiring out of the money. Therefore, Theta is a negative value, and it is higher for options with shorter time to expiration.

Which One of the Following Defines the Relationship Between the Value