Beginning Traders

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Time Decay

Options are wasting assets. They lose value over time and this phenomenon is called time decay. The rate at which the time value of an option is eroded is known as theta.

Time decay is more pronounced for at-the-money and out-of-the-money options than in-the-money options since in-the-money options possess intrinsic value in addition to time value. Time decay also accelerates as the options are approaching the end their lifespan.


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