Why Is the Time Decay (Theta) Generally Highest for OTM Options? ⎊ Path

Why Is the Time Decay (Theta) Generally Highest for OTM Options?

Theta is generally highest for at-the-money options, not OTM. However, OTM options lose their entire value to time decay if they expire worthless.

The rate of decay is highest for ATM options because they hold the most extrinsic value, which is the value that decays over time. Deep OTM options have a lower absolute Theta because their total value is already low.

Why Is Extrinsic Value Highest for At-the-Money Options?

What Is the Relationship between Theta and the Option’s “Moneyness”?

Why Is the ATM Option Most Sensitive to Changes in Implied Volatility?

Explain the Concept of “Moneyness” (ITM, ATM, OTM)

How Does an Option’s Moneyness Affect Its Premium?

What Is the “Gamma” of an Option and Why Is It Highest for ATM Options?

Does an ITM Option Lose Time Value Faster or Slower than an OTM Option, All Else Equal?

Define “Extrinsic Value” and How It Relates to Time Decay