How Option Time Decay (Theta) Works

What is Theta? What is option time decay? How does time decay work? These are common questions of beginning options traders.

Theta is the Greek term used to denote option time decay. Theta is one of the 'Greeks' used by options traders for option analysis. Theta measures the rate of decline in the value of an option due to the passage of time.

Options are wasting assets. Options lose time value (decay) every day until expiration. Once expirartion is reached time value becomes equal to 0. The longer the time to expiration the more expensive the option will be.

The rate of option time decay (Theta) increases with about 30 days until expiration for out of the money (OTM) options. Why? Because being closer to expiration increases the probability of accurately forecasting the direction and price of the stock or index.

Option values, or premiums, for out of the money options are made up entirely of Theta, or time value. When selling options, the closer to expiration you are the better the better your odds. On the other hand, the closer to expiration you are the smaller the premiums are.

To successfully trade close to expiration review our Option Scalper newsletter. With never a losing month or year see what you're missing!

The further away from expiration you are the greater the premium there is to sell. When selling longer term options you want to sell with about 40 or more days until expiration.

Master selling longer term options with the Time Bandit Trader newsletter. In 4 years only one losing month and never a losing year what more could you ask for?

Selling options is a far better strategy then buying options. Unless you are able to predict with extreme accuracy exactly WHEN and HOW FAR a stock or index will move then selling options is definitely the best approach.

So what do you do with the cash reserve 'safe money' portion of your investments? You know, the cash for rainy days that your bank or broker is paying you 0.1%. Let the Preferred Stock Investor newsletter put that money to work generating from 6% to as high as 14% while remaining completely liquid accessible.

Make money while sitting idle watching your account balance grow. Not a bad gig if you can get it! Guess what, YOU CAN GET IT with Many Ways To Trade.

Safe 8% consistent returns + 'High-Yield' without wild swings - PREFERRED STOCK INVESTOR
4 years with only 1 monthly loss and never losing a year - TIME BANDIT TRADER
3% a week for years, never more than a 15% trading loss, never a losing year - OPTION SCALPER