Significance of Time Decay In Options

Investopedia.com defines time decay in options trading as "the ratio of the change in an option price to the decrease in time to expiration. Since options are a wasting asset, their value declines over time. As an option approaches its expiry date without being in-the-money, its time value declines since the probability of that option being profitable (in the money) is reduced."

 If an option is out-of-the-money then its time decay will get more rapid as the expiration date approaches. If the option is deep in-the-money then the option's time value will deteriorate even faster. As a result, options traders who have deep in-the-money options close to expiration would usually sell them at a lower price.

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