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
Answer: B
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FIN402 Chapter 7
- The purchase of one option and the sale of another is known as
- Which of the following have similar profit graphs?
- Early exercise is a disadvantage in which of the following transactions?
- Which of the following is the best strategy for an expected fall in the market?
- Which of the following transactions can have an unlimited loss?
- Which of the following strategies does not profit in a rising market?
- Suppose a put is added to a straddle. This overall transaction is called a strip. Determine the profit at expiration on a strip if the stock price at expiration is $36.
- Suppose the investor adds a call to the long straddle, a transaction known as a strap. What will this do to the break even stock prices?
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