Does the Time Value of an ATM Option Decrease Linearly or Non-Linearly over Time?
The time value of an ATM option decreases non-linearly over time. The decay is slow initially for long-term options but accelerates dramatically in the final months and weeks before expiration.
This non-linear, accelerating decay is characteristic of Theta, and it is most pronounced for ATM options due to their high time value component.
Glossar
Atm Option
Strike ⎊ An At-the-Money (ATM) option is characterized by its strike price being precisely equal, or extremely close, to the current market price of the underlying cryptocurrency asset.
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.
High Time Value
Momentum ⎊ The concept of high time value, particularly within cryptocurrency derivatives, reflects the sensitivity of an option's price to the passage of time, amplified by underlying asset volatility and market sentiment.