Which option pricing component reflects the sensitivity to time decay?

The correct choice is Theta, which measures the sensitivity of an option's price to the passage of time, commonly known as time decay. As options approach their expiration date, the time value of the options decreases, and Theta quantifies how much the price of an option is expected to decrease as each day passes, assuming other factors remain constant.

Theta is particularly important for traders who are holding options, as it helps them understand how the value of the option may erode as time runs out. A higher Theta indicates that the option will lose value more rapidly as the expiration date approaches.

In contrast, the other components analyzed do not reflect this specific sensitivity to time. Delta measures the sensitivity of an option’s price to changes in the price of the underlying asset, Gamma measures the rate of change of Delta in response to changes in the underlying asset's price, and Vega reflects sensitivity to changes in implied volatility. Each of these components addresses different aspects of option pricing, but only Theta focuses specifically on the impact of time decay.