Markets · 6 pages · 12 min

How time decay works against a long option

A long option's time value shrinks as expiration approaches if the share price does not move enough.

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From the opening

Time decay is the slide in an option premium as expiration approaches, when the share price and the expected swing are held steady. The long holder paid for time, and that slice of the premium shrinks as the calendar uses the time up, which works against the long and for the short. The opening covers time value shrinks toward expiry, intrinsic value is separate, and a still share price favors the short.

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Inside

Time value shrinks toward expiry
Intrinsic value is separate
A still share price favors the short
Theta names the clock sensitivity
Where the idea stops applying
A distinction worth keeping

Sources

Option time value and theta
Long option as a wasting asset

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How time decay works against a long option

From the opening

Inside

Sources

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