Observations of the ATM straddle price

Quantitative Finance

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 market is mispriced There is nothing wrong The volatility is increasing greatly Time is passing at a slower rate The stock price is increasing greatly The straddle approximation formula does not hold when

t < 5

days