SIE practice questionmediumTime Value of Options
As option expiration approaches, what typically happens to an option's time value?
- AIt remains constant
- BIt increases
- CIt decreases✓ Correct answer
- DIt becomes negative
Explanation
Why C — It decreases
Time value decays as expiration nears, due to the reduced probability of the option moving into the money. Time value never becomes negative and will not increase or remain constant without external factors.
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