Learn More On Options Time Decay
All Options are “wasting” assets i.e. their value goes down as the Options approach expiry. In the Options market, Options series expire every month in general, and then there are Weekly or Quarterly expiry series for the bigger stocks and indices. Every Option is exposed to time decay. The less time there is for expiry, the less value an Option will have, and the reverse is also true. We consider the same examples from the Call and Put Option courses – Real estate example for Calls, and Insurance for Puts. Finally, we take you to a live trading platform and show you Time Decay in Options, in action in the second chapter of this course. We look at real AAPL Options and understand precisely how Time Decay works. Time Decay in Options works exponentially, meaning with lesser and lesser time to expiry, the Option time decay will be more with each passing day. Finally, at expiry, the Option will have only Intrinsic value.
Concept of Time Decay in Options
Why are Options referred to as “wasting” assets, and why all Options must expire at some time. Time decay in Options contributes to a majority of strategies, even for Advanced traders.
Real world examples
Discussion of Time Decay in Options using real world examples of Real Estate and buying Insurance. The same examples were used in the Call Options and Put Options courses earlier in this module.
Buyer and Seller differences
Why is Option Time Decay the great “equalizer” between a buyer and seller. Seller advantages are explained in detail, and one of the biggest benefits for a seller is that they benefit from Time decay in Options.
Time decay in Options and Moneyness
The impact of Time decay is very different for Options that are At-The-Money, In-The-Money, and Out-of-the-Money., and this is a strategic cornerstone of Options. These differences can help with optimizing trading strategies.
Option Time Decay Curve
What does the Time Decay “curve” look like. What do we mean by “exponential” time decay and how does this happen. The Option Greek Theta specifies how much an Option will undergo time decay on a daily basis.
Time Decay in action
This is all good in theory – Can we see it in action? ABSOLUTELY!!!! Time decay in Options is demonstrated on a Live trading platform, with a detailed study of 3 different expiries.
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