Theta on Deep In The Money Puts (LOS 60.d) scenario, increase, contract, positive, five

PieMan

In reading on the five inputs of the BSM and their related Greeks, the test repeatedly comes back to the point that some deep in the money puts display positive theta (time value) as expiration of the contract draws closer. Does anyone know the rationale behind this? They make a big deal of it and I picture time value basically as a fuse that slowly burns out and I can't foresee a scenario where erosion of time would increase the value of the put all else held constant. Thanks in advance...



Edited 1 time(s). Last edit at Tuesday, February 1, 2011 at 08:39PM by EastCoastJ.