Friday, 19 July 2013

TIME DECAY IN OPTION

The ratio of the change in an option's price to the decrease in time to expiration. Since options are wasting assets, their value declines over time. As an option approaches its expiry date without being in the money, its time value declines because the probability of that option being profitable is reduced. Time decay is a crucial component traders consider when deciding when/where to buy sell options.....
Time decay can be represented by a Greek term know as Theta. - options time to maturity has a huge impact on the price of the option. That is, as the option moves closer to expiry  its chances of becoming more profitable decrease with every day. As you can probably imagine, predicting an approximate stock price becomes easier every day. the Time Value of an option decreases exponentially as the maturity date approaches - especially as the time to maturity passes the 30 day mark. -

2 comments:

  1. Thank you for this article. It was a great read.keep it up

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  2. most accurate tip for commodity ...........
    CRUDEOIL (18 DEC) TREND: CONSOLIDATE
    RES 1: 6050
    RES 2: 6100
    SUPP 1: 5950
    SUPP 2: 5900
    STRATEGY: SELL ON HIGHS
    penny stock tips

    ReplyDelete