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
Options contracts are written for a specific expiration date. If the option is still “out of the money” (current stock price is less favorable than the strike price, and therefore wouldn’t be profitable to exercise), the option will expire worthless, and the investor who held the option will have lost all they purchased it for.
Because the chances of a stock moving a large amount decrease as the expiration date nears, options tend to decrease in value even if the stock price stays relatively unchanged. The value in them earlier was purely speculation that such a move would occur.
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