OmarAdnan

ohai Wrote:
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> OP, theta is change in the price of the option if
> time to maturity decreases, holding all else
> equal. If your option is extremely in the money,
> the option value will be close to intrinsic value
> (the difference between spot and strike). It
> doesn't matter if it's a call or a put. As time
> progresses towards expiration, your payoff becomes
> sooner and hence, it increases in value.
>

This is true. Imagine you have a 5-year put with a strike price of $100 on a company that is bankrupt (stock price = $0). Since the stock price remains $0, you have a guaranteed payment of $100, the present value of which is equal to 100/(1+r)^t. Therefore, as time progresses, this option becomes more valuable, meaning theta is positive.