This article was originally published in The Option Strategist Newsletter Volume 8, No. 22 on November 24, 1999.
At a recent seminar or conference (don’t ask which one – there have been too many to distinguish one from another!), the subject was raised regarding the effect of time decay on an option. As the discussion progressed, it dawned on me that many (perhaps novice) option traders seem to think of time as the main antagonist to an option buyer. However, when one really thinks about it, he should realize that the portion of an option that is not intrinsic value is really much more related to stock price movement and/or volatility than anything else – at least in the short term.
This article was originally published in The Option Strategist Newsletter Volume 6, No. 6 on March 27, 1997.
I was tempted not to label this article as a "basics" article, because the concept we're going to discuss is one that is probably not all that familiar to most option traders. It concerns the rate of decay of in- or at-the-money options versus that of out-of-themoney options. It's a concept that I realized I understood subconsciously, but not one that I had thought about specifically until I recently read Len Yates' article in The Option Vue Informer. Len is the owner and founder of Option Vue, creator of the software package of the same name and is one of the best option "thinkers" in the business (we are going to have a review of Option Vue when their new version is released).
This article was originally published in The Option Strategist Newsletter Volume 6, No. 6 on March 27, 1997.
I was tempted not to label this article as a "basics" article, because the concept we're going to discuss is one that is probably not all that familiar to most option traders. It concerns the rate of decay of in- or at-the-money options versus that of out-of-the-money options. It's a concept that I realized I understood subconsciously, but not one that I had thought about specifically until I recently read Len Yates' article in The Option Vue Informer. Len is the owner and founder of Option Vue, creator of the software package of the same name and is one of the best option "thinkers" in the business (we are going to have a review of Option Vue when their new version is released).
