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The Skinny on Options: Abstract Applications

Extrinsic Value Lite

The Skinny on Options: Abstract Applications

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

As tastytraders, who focus exclusively on selling out-of-the-money (OTM) premium, it’s important to recognize that any option that is OTM will be 100% extrinsic value. Furthermore, if these options remain OTM at expiration, their price will fall to zero, and they will effectively be worthless. This is essentially the best-case-scenario for selling OTM options.

As a result, it begs the question: is this a consistently sustainable strategy? In today’s piece, we see that it is not, and a more reasonable expectation is to capture approximately 25% of all the extrinsic that we sell.

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