THE OPTIONS COURSE- TIME DECAY
THE OPTIONS COURSE TIME DECAY Have you ever heard the expression that options are “wasting assets”? Since options suffer from what is known as time decay, the option con tract loses value with each passing day. Therefore, if a strategist buys a put or call and holds it in her account, even if the underlying stock or index makes no price movement at all, the portfolio will lose value. As a result, options strategists must carefully examine how time is affecting their options positions. This section explains how. Options contracts are agreements between two parties as to the right to buy (in the case of call) or sell (with respect to puts) an underlying as set at a predetermined price. Each options contract has a fixed expiration date. Hence, an XYZ call option gives the owner the right to buy XYZ at a specific price (known as a strike price), and the XYZ put option gives the owner the right to sell 100 shares of XYZ stock at a predetermined price, but only u