Observations of the ATM straddle price

Quantitative Finance Level 1

On the week of expiry, you recorded the closing price of the ATM straddle as follows:

Trading days left	5	4	3	2
Price of Straddle	3.35	3.23	3.03	2.73

What can you conclude is happening?

The straddle approximation formula does not hold when \( t < 5\) days Time is passing at a slower rate The market is mispriced The volatility is increasing greatly There is nothing wrong The stock price is increasing greatly

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