How Does the Time until Expiration (Time Decay) Influence the Options Bid-Ask Spread? ⎊ Path

How Does the Time until Expiration (Time Decay) Influence the Options Bid-Ask Spread?

Options closer to expiration have higher time decay (Theta) and are generally more sensitive to small price changes in the underlying asset. This increased sensitivity and the rapidly changing risk profile cause market makers to widen the bid-ask spread for short-dated options to compensate for the higher risk of adverse price movement before they can hedge.

This wider spread directly increases the potential for slippage on those contracts.

How Does Regulatory Uncertainty Affect the Willingness of Market Makers to Tighten Spreads?

Does the Bid-Offer Spread Change Depending on Market Volatility?

How Does the Reduction in Transaction Cost Affect the Bid-Ask Spread for On-Chain Options?

How Does Implied Volatility (IV) Specifically Influence the Bid-Ask Spread of a Cryptocurrency Option Contract?

Why Do Market Makers Prefer to Trade Weekly Options near Expiration?

How Does High Trading Volume Typically Affect the Bid-Ask Spread?

What Is the Relationship between Implied Volatility and the Bid-Ask Spread?

Does the Bid-Offer Spread on an Option Typically Widen or Narrow as the Option Approaches Expiration?

Glossar

Time until Expiration

TimeHorizon ⎊ Time until Expiration, or Time to Maturity, is the remaining duration until an options contract reaches its conclusion and its intrinsic value must be determined or the right forfeited.

Adverse Price Movement

Exposure ⎊ Adverse price movement within cryptocurrency derivatives represents a deviation from anticipated directional forecasts, impacting portfolio valuations and risk parameters.