I like looking at lose pron from time to time. But, never understood how people lose money due to time decay in options.
In: Economics
You have an option that’s not in the money, and every day closer to expiration the likelihood of it ever becoming in the money goes down so the amount another buyer is willing to pay goes down.
Let’s say you have a $50 call that expires in 3 weeks, and the stock is currently trading at $45. That option has a greater chance of climbing above $50 than the same stock’s $50 call expiring that week, so buyers will pay more for the contract with a date further out. And when the 3 week contract only has a week until expiration in 2 weeks, it’ll be worth less than the same strike price contracts dated further out.
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