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Question

Which of the following measures the time decay on option premium?

A Alpha Correct Answer Incorrect Answer
B Beta Correct Answer Incorrect Answer
C Gamma Correct Answer Incorrect Answer
D Theta Correct Answer Incorrect Answer
E Vega Correct Answer Incorrect Answer

Solution

Theta is a measure of the time decay of an option i.e. the dollar amount an option will lose each day due to the passage of time. ·         For at-the-money options, theta increases as an option approaches the expiration date. ·         For in- and out-of-the-money options, theta decreases as an option approaches expiration

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