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 is the erosion of the price of an option over time due to the decreasing probability of the option moving in the favor of the holder. This decay is accelerated as the expiration date of the option approaches. Therefore, option time value decays more rapidly as expiration approaches.

Which of the Following Statements Best Describes the Nature of Option