| Option
Time Decay
Time decay refers to the effect that time has on the value of an option.
It is negative for option buyers and positive for option writers (sellers).
As a rule of thumb the market generally trends only 15% of the time. The rest of the time it is non-trending.
In other words more times than not the market trades within a certain price range making random up and down moves.
Why is this important? Because it means that option writers generally have a greater probability of being profitable than option buyers (particularly when writing options that are a significant distance from the current market price with limited time to expiry).
This must be weighed up against the potential unlimited risk and the limited profits available when writing
options, as opposed to the unlimited profit and limited risk of buying options.
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