Does Accelerated Decay Affect ITM and OTM Options Equally? ⎊ Path

Does Accelerated Decay Affect ITM and OTM Options Equally?

Accelerated decay affects the time value component of both ITM and OTM options. However, since OTM options are entirely time value, the decay represents a larger percentage loss of their total premium.

ITM options have a stable intrinsic value, which dampens the percentage effect of the decay.

Does Theta Decay Affect Intrinsic Value?

Does a Volatility Crush Affect Calls and Puts Equally?

Does IV Affect the Intrinsic Value of an Option?

Why Is Volatility More Important for an Out-of-the-Money Option than an In-the-Money Option?

Does Theta Decay Affect In-the-Money, At-the-Money, and Out-of-the-Money Options Equally?

Define In-The-Money (ITM) for Both a Call and a Put Option

Does Time Decay Affect Intrinsic Value or Extrinsic Value?

Why Is the Delta of a Deep OTM Option Often More Sensitive to Changes in Vega than an ATM Option?

Glossar

Accelerated Decay

Mechanism ⎊ This phenomenon describes the non-linear erosion of an option's time value, or Theta, which intensifies as the derivative approaches its expiration date.

Time Value

Component ⎊ Time value, also known as extrinsic value, is a component of an option's premium that reflects the probability of the underlying asset's price moving favorably before the option expires.