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Time DecayThe seller of an option attempts to benefit from the decay of the option’s time value. Time value captures the possibility, however remote, that the option may increase in value due to the changing value of the underlying commodity. This value depends on the time until the expiration date and the volatility of the underlying commodity's price.
If the underlying futures price has not been reached by the strike price of the option, the option is considered to be out of the money. As time passes, if the option remains out of the money, the option gradually loses its time value.
The time value of an option is always positive and declines exponentially with time, reaching zero at the expiration date. Upon expiration, if the option is still out of the money, the option will have no value left, and it will expire worthless. Its holder will simply abandon the option leaving the option seller with the premium.
The entire premium for which you sold the option will be in your account, less commissions and fees. At that time, your position closes out automatically.
The graph above illustrates the accelerated decline of time value as expiration draws near. The graph allows you to see why an option is considered a "wasting asset". Time value erodes as each day passes. The rate at which the time value is eroding increases as the option’s expiration nears. Notice that the time value decays the fastest during the last days of the option's life.
Option writing as an investment is absolutely inappropriate for anyone who does not fully understand the nature and the extent of the risks involved and who cannot afford the possibility of a potentially unlimited loss. It is also possible in a market where prices are changing rapidly that an option writer may have no ability to control the extent of his losses. Option writers should be sure to read and thoroughly understand the Risk Disclosure Statement that is provided to them.
Is TimeMeansMoney™ right for you?
This premium collection program is for speculators who are at a point in their lives where they can assume some calculated risk. This is not a get rich quick program. This program will identify trades that have a statistically high probability for success. With your approval, we will enter and exit these trades for you. Participants must understand that even with probability on their side, there is a calculated risk of loss on each and every trade.
If you understand that most options expire worthless and the logic of harnessing time makes sense to you, or if you would just like to learn more about selling options, please feel free to contact at us toll-free at 888-325-9300. This type of investment must be appropriate for you. We will explain in detail the risks involved and the suitability of this type of program to your needs. |
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