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Theta of a long option position is generally:
APositive — option gains value with passage of time (within the standard regulatory framework)
BNegative — option loses value with passage of time (time decay)
CZero in all cases
DPositive only for in-the-money options
Answer & Solution
Correct answer: B. Negative — option loses value with passage of time (time decay)
1. Identify what the question asks: this concept maps to theta (§7.3).
2. Apply the framework or formula relevant to the topic.
3. Eliminate distractors and arrive at the correct option (B).
_Source: ICAI BoS CA Final Paper 2, Ch 9 "Derivatives Analysis and Valuation"_
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