How Can a Trader Visualize the Non-Linear Decay of Time Value?
A trader can visualize the non-linear decay of time value by plotting the option's extrinsic value against the time to expiration. This plot typically shows a convex curve, which is relatively flat far from expiration but drops steeply in the last 30 to 45 days.
This visually represents the accelerating rate of theta decay.
Glossar
Far from Expiration
Duration ⎊ This term describes options where the time remaining until expiration is substantial, typically weeks or months away, placing them significantly outside the near-term trading horizon.
Decay of Time Value
Erosion ⎊ ⎊ The decay of time value, within cryptocurrency options and financial derivatives, represents the diminishing extrinsic value of an option contract as its expiration date approaches.