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What is the Impact of Time Decay?

The longer the remaining lifetime, the ...

  • higher the odds that the option ends up in-the-money
  • more likely it is that the holder will generate a profit
  • higher the time value of an option

The purchase of options with a slightly longer remaining lifetime has one advantage: the time value decay is small at the beginning. It’s the other way round with selling options. Slightly shorter remaining lifetimes are better, because the higher time value decay at the end of the lifetime works in favour of the seller.

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