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From Theory To Practice

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Time Value Awareness

From Theory To Practice

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

Options trading itself is very much a puzzle that requires many, many pieces to complete. The pieces themselves can often times represent very complex ideas with multiple layers of understanding. One of those pieces is time value, or extrinsic value. Being fully aware of all of the nuances that time value possesses is not a simple task for any trader. However, we love to sell OTM options whose prices are entirely composed of time value, so this is an extremely worthwhile project for us to undertake. We have talked before about how time value fits into option prices, different rates of decay, and even our optimal time window for selling options. Today, we add to that discussion by looking at the time value in various options.

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