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Tackle Today: Theta & Time Decay

February 24, 2022

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Tackle Today: Theta & Time Decay

«The Clock Tick.»

Traders,

Time plays a predictable role in the pricing of an option. Since stocks move more over one year than one month, long-term contracts are more expensive. But, of course, time doesn’t stand still. Eventually, that one-year option will become a one-month option. Thus, the contract should decay incrementally in value between now and then.

And that’s precisely what it does.

Calls and puts both suffer time decay. It’s an exponential phenomenon that increases as expiration approaches. Simply put, short-term options are more susceptible to time decay. This is why options selling strategies like covered calls and naked puts involve selling one-month contracts.

Theta measures how much an option loses in value per day.

So, if the Theta is -0.05, then your contract loses 5 cents per share per day. In other words, you’re losing $5 a day.

When selling options, time decay turns from foe to friend. In that situation, Theta is a positive number and measures how much you profit per day.


🛑 Upcoming Options 101 Webinar: Options Greeks for Beginners with Coach Tyler Craig | February 28th, 2022 at 8:30 PM EST on YouTube

Want to really understand what makes an options contract tick? Learn the Greeks. They are the metrics that allow you to measure everything. Join Tackle Trading and get ready for an insightful discussion that will help you take your options trading to the next level.

On this webinar you are going to learn:

✅ What are the Options Greeks?
✅ The two dimensions of Delta
✅ Time Decay and Theta
✅ The role of Gamma
✅ Volatility and Vega

You don’t want to miss it!


Video of the Day: Options Greeks Guide Part 4: What is Theta (BONUS: FREE Options Greeks Guide)

To professional traders, Theta means cashflow and passive income. Come learn more about this powerful Option Greek and how it can benefit your trading skills. Topics covered in this video:

✅ What is Theta?
✅ How Theta Works
✅ How Theta affects the Option Premium
✅ What is TimeDecay


Access the entire Options Greeks Guide video series

Continue learning about this powerful options trading concept: the Options Greeks. The entire Options Greeks video series can be accessed by clicking on the thumbnails below.


Chart of the Day: A Reason for Optimism

Per Ryan Detrick of LPL Research, “This is the 33rd correction/bear market since 1980…they aren’t fun, and no one likes it, but the return 1-year later is nearly 25% and higher 90% of the time.”


Today’s Line up

Traders Lounge 11 AM EST

Join the coaches in this live lounge, ask questions, discuss ideas or just sit back and listen to veteran traders discuss market conditions.

Cashflow Club 8:30 PM EST

Held every Thursday before Friday’s option contract expirations, this show helps you perfect your favorite cashflow strategies.

Halftime Report 12:30 PM EST

The Halftime Report starts at 12:30 EST and covers what news is driving the market, chart analysis from the movers and shakers of the day, and fun in a way that only Matt and Tim can deliver.


Tackle Trading: Financial Freedom is a Journey. Sign up now for a 15-day free trial.

Financial freedom is a journey

Sign up now and gain unfettered access to all of the quality content and powerful Scouting Reports that our Pro Members enjoy for 15-days absolutely free with no strings attached and let us show you what your trading has been missing.


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